Annual Report
2014
www.sdl.com
Annual Report 2014
Contents
Strategic Report
Governance
Financial Highlights
23 Chairman’s Overview
Operational Performance
24 Board of Directors
What We Do
31 Audit Committee
Chairman’s Statement
35 Nomination Committee
3
3
4
5
6
8
CEO’s Review
Financial Review
11 Case Studies
13 Risk Management
16 People
21 Environment
Financial Statements
52 Statement of Directors’
Responsibilities
53 Independent Auditor’s Report
56 Consolidated financial
statements and related notes
37 Directors’ Remuneration
86 Company financial statements
49 Directors’ Report
and related notes
98 Five Year Summary
Corporate Information
*These sections form part of the Directors’ Report
Strategic Report
The directors present an overview of SDL PLC’s structure, 2014 performance, strategic objectives and plans.
Financial Highlights
Revenue
2010
2011
2012
2013
2014
£203.5m
£229.0m
£269.3m
£266.1m
£260.4m
Operating Margins Before
Amortisation and One-off Costs
2010
17.4%
2011
17.3%
2012
2013
2014
13.7%
3.1%
6.3%
Profit Before Tax, Amortisation
and One-off Costs
2010
2011
2012
2013
2014
£16.5m
£8.2m
£35.4m
£39.7m
£37.0m
Operating Cash Flow
2010
2011
2012
2013
2014
£17.5m
£18.3m
£5.5m
£27.1m
£32.6m
Operational Performance
Strategic Performance Indicator
Measure
Revenue
Profit before tax, amortisation
and one-off costs
Change % (constant currency)
Change % (constant currency)
Net cash flows from operating activities
Change %
Measure
+3%
+103%
+233%
Technology revenues
% of group total
44% (2013: 44%)
Innovation
Number of product releases
57 with SaaS products moving to continuous
release model (2013: 75)
4
Annual Report 2014
What We Do
Digital Experience: SDL enhanced its capabilities for an all-
in-one digital experience to further help brands engage their
customers through contextually relevant experiences. This
includes a set of digital experience accelerators that allow the
creation of rich web and optimised ecommerce experiences.
Combined with new capabilities that allow marketers to test
and measure how campaigns or personalised offers perform.
Leveraging SDL’s Digital Experience capabilities, organisations
including Virgin Money, KONE, Halfords, Mandarin Oriental and
Kaeser Kompressoren are now providing paramount customer
experiences to brands.
Knowledge Centre: SDL goes beyond the marketing funnel
providing organisations Knowledge Centre allows for the
creation of dynamic product knowledge views that offer
a superior experience for documentation and self-service
support scenarios by providing the same brand richness as
done for marketing experiences. Organisations like NetApp,
Life Technologies and OSIsoft are using SDL’s Knowledge
Centre capabilities to drive superior customer experiences.
Customer Analytics: With its customer analytics technology,
a single view of the customer that aggregates all customer
data including profile, situational data, transactional data, and
third-party data that’s available within the enterprise to drive a
segment of one experience which enables real-time analysis of
the customer experience. SDL Customer Journey Analytics has
the ability to track brand health looking at customer perception
versus that of competitors. SDL’s Customer Analytics capabilities
make it possible for Rebel, Envirofone and totesport to provide
seamless customer experiences to brands.
regions and
standpoint. New
Language: SDL provides global brands the ability to
effectively communicate across
languages
ensuring organisations are communicating in the language
of the customer, a critical requirement from a customer
language enhancements
experience
include SDL’s Targeted Industry Language Platforms for Travel
& Hospitality, Life Sciences, Financial Services and Digital
Marketing; organisations can now cater to the terminology and
language nuances required for these targeted industries. With
SDL’s Language capabilities GTA and KONE are overcoming
challenges to achieve customer experience success.
Strategic Report
5
Chairman’s Statement
David Clayton
Chairman
General Meeting of 2.5 pence per share.
Overall 2014 has seen good progress in SDL’s return to profitable
growth. On behalf of our stakeholders I would like to thank all
our people for their commitment, passion and hard work.
SDL has continued to make good progress in building a
sustainable business that delivers value to its shareholders. The
long term external market drivers are firmly in place and the
Board is confident that these, together with our robust strategy,
should support the continued growth of SDL over the years
ahead.
David Clayton
Chairman
Summary:
•
Solid progress – adjusted* earnings per share of 15.10
pence (2013: 2.57 pence); (*before amortisation
and one-off costs).
• Dividend reinstated – 2.5 pence per share to be paid
• Board development effectively managed
SDL has made good progress in 2014 and has benefitted from
our restructuring and commitment to long term investment in
enterprise level sales and marketing. As a result, we have seen
our adjusted earnings per share increase from 2.57 pence to
15.10 pence.
SDL continues to address the rapidly evolving market
conditions well. These market conditions have provided an
opportunity for the Board to review group strategy and think
more broadly about how best to harness our competitive
positioning, assets and expertise.
Under Mark’s leadership, the executive team has continued to
make progress in 2014 to complete the operational restructure
of the business to align with the significant market opportunity
whilst laying the foundations for sustainable future growth.
I am pleased to lead a talented Board with the combination
of expertise and experience to drive the Group forward. Whilst
we have a clear strategic path, as Chairman I am responsible
for continually developing and evolving the Board to make it
relevant and appropriately experienced in the light of both
our short-term and longer-term business strategy. To that
end we were delighted to welcome Alan McWalter and Glenn
Collinson as non-executive directors during 2014. They have
extensive and highly relevant experience and bring a fresh and
new perspective to the Board and its Committees.
Alan McWalter joined SDL as the Senior Independent Director
on 1 March 2014. He sits on the Audit and Remuneration
Committees and is Chairman of the Nomination Committee.
Glenn Collinson joined SDL as a Non-executive Director and
Chairman of the Remuneration Committee on 1 June 2014.
He also sits on the Audit and Nomination Committees. We are
already benefiting from their knowledge and experience and
we look forward to their contributions to the next stage in the
development of the Group.
It is SDL’s people, who, more than any other factor, make the
company special; supporting their development is one of the
key investments we can make in the future of the business.
Talent identification and development has been a key priority
of our human resources strategy. Work is underway to help
the development of our people with increased emphasis on
growth areas of our business. Consistent with our stated policy
to progress dividends to shareholders in line with our earnings,
the Board is recommending a final dividend to the Annual
Strategic Report
6
Annual Report 2014
CEO’s Review
2014 has been a year of very significant progress for SDL.
Back in January 2013, we began a programme of significant
investment and operational realignment to better position the
company to address its market opportunities. As at the end
of 2014 we have seen not just seen significant recovery, but
excellent new bookings growth in our technology business
and solid contribution in our language services business,
enhancing the margins of both businesses and delivering
good cash conversion for the Group at this relatively early point
in the turnaround of the financial performance of the Group.
Revenues were £260.4 million up 3% at constant currency
(2013: £266.1 million at reported currency). Profit before
taxation and amortisation of intangible assets (“PBTA”) was
£16.5 million (2013: £8.2 million). During the year, net cash in
the business increased by £14.9 million. Net cash at the end of
the year was £13.1 million (2013: net debt of £1.8 million).
Technology segment new license bookings had a year of
excellent growth, up 14% at constant currency. This segment
delivered gross margins of 71.0% (2013: 71.4%) and PBTA
margins of -8.6% (2013: -14.0%) at constant currency.
Language Services continues to deliver revenue growth
and increased margins with significant progress in gross and
operating margins. This segment delivered gross margins
of 45.5% (2013: 42.4%) and PBTA of 17.9% (2013: 16.3%) at
constant currency.
We have spent the last two years creating the right structure,
systems and processes to enable SDL to deliver in the new
digital world. This
involved tremendous upheaval and
disruption essential to achieve our long term goal of exceeding
the levels of growth and profitability we achieved in the prior
10 years. There is still investment to do and we will continue
to make these investments to deliver long-term growth and
profit.
During the year we continued to measure the progress of
the business against certain management Key Performance
Indicators:
Summary KPIs
Total Technology bookings*
New logo software bookings*
Annual Recurring Revenue*
Net cash
Language Services gross margin*
Language Services operating margin*
* at constant currency
2014
+14%
+35%
+14%
£13.1m
45.5%
17.9%
Our transformation programme has set the foundations and
structure to enable us to embrace the market opportunity and
Mark Lancaster
CEO
deliver solutions for Customer Experience Management. We
have converged our Technology portfolio under the Customer
Experience Cloud (CXC) umbrella and brought customer care
across Technology and our Language Services business closer
together so that we provide the very best service possible. Our
customers and the market have reacted very positively to these
changes and we have some impressive brand names taking
multiple CXC solutions such as House of Fraser, Schneider
Electric, TomTom, Philips Healthcare and Akamai Technologies.
We now have a solid foundation with best of breed integrated
technology and, we have recruited the best and the brightest
talent across sales, pre-sales and account management to
ensure we execute against our goals and provide the impetus
for our future success. We also have a cohesive partner
ecosystem around us, which is key to our success.
Market and Strategy
The explosion of digital content and channels, and the
way people gain knowledge and make decisions is forcing
companies to change significantly and language is increasingly
being recognised as a critical strategic component of Customer
Experience.
Organisations are faced with the increased challenge of
meeting growing consumer expectations and delivering a
superior experience. SDL CXC significantly enhances marketers’
ability to meet their customers’ needs and deliver a product
and brand experience that resonates with them. Marketers are
provided with all the information required on who to target
and how to personalise the experience for the customer, while
ensuring the delivery of relevant and timely information to the
right device, in the customers’ own language, faster than any
other vendor today.
We released Customer Experience Cloud 2.0 that focuses
on four key pillars: Digital Experience, Knowledge Centre,
Customer Analytics and Language which together meet the
Strategic Report
7
needs of today’s global organisations. With these enhanced
capabilities, organisations can gain more insight into customer
behaviour and preferences to guide customer experience
strategies, act on opportunities in real time and deliver relevant
experiences in the language of the customer. This release has
major improvements from our 1.0 release in integrated user
experience, cloud capabilities, Customer Journey Analytics and
ecommerce.
Innovation – the future
In the next five years, as the internet babies become the
mainstream, all businesses will need to deliver personalised
experiences to global markets. Our research and development
programmes are delivering and will continue to deliver
technology and services that enhance real-time business
decisions by making sense of Big Data (social and structured),
that covers their customers’ journeys from product research,
purchase and post-purchase customer service, all on an
advanced Cloud-based platform. So, our future is: real time
decisioning; Language Cloud technology; post purchase CX;
and moving all our technology to SaaS - self-service, self-starter.
Outlook
We expect the digital Customer Experience Management
market to continue to evolve rapidly over the next three
years, as consumers demand better customer engagement
across a broad spectrum of online devices and increasingly
smartphones. SDL’s investments into the technologies that will
ultimately deliver a platform comprising web, social, big data
analytics, ecommerce optimisation and language position the
company well to be a leader in this market. We expect this new
Customer Experience market to grow by more than 15% per
year as we move into 2016.
The operational transformation is progressing well. Whilst
there is ongoing investment, we believe that we are now well
positioned to deliver differentiated solutions globally to our
large customer base within this competitive market.
We enter a new year with a solid pipeline of opportunities and
are well placed for accelerating revenue growth. I am more
confident than I have ever been in the products and services
we offer and the structure, process and people we have at SDL.
Strategic Report
8
Annual Report 2014
Financial Review
Summary Performance
Revenues for 2014 were £260.4 million (2013: £266.1 million).
Profit before taxation, amortisation of intangible assets and one
off costs (“PBTA”) was £16.5 million (2013: £8.2 million). Gross
cash in the business at year-end was £22.1 million (2013: £18.2
million) and net cash after borrowings was £13.1 million (2013:
net debt £1.8 million).
Organic growth of 3% was offset by adverse foreign currency
effects of 5%. Headline revenue decreased by 2%. Language
Services and Technology segments have grown by 2% and
3% respectively on a constant currency basis. Geographically,
Europe increased by 10%, the decline in Asia was 4% and North
America was 7% on a constant currency basis.
Cash generated from operations was £22.2 million (2013:
£15.8 million). Cash generation in the year has been impacted
by cash outflows associated with the prior year restructuring
programme and the cash settlement of retention share plans.
Capital expenditure was reduced to £2.4 million following the
prior year investment in SaaS Cloud infrastructure (2013: £6.1
million). Tax paid was £3.9 million (2013: £10.3 million).
The business continues to benefit from a diverse mix of
regions, industry verticals and customers, limiting the Group’s
exposure to adverse economic conditions in certain countries
and sectors. Customer concentration is in line with prior year
with the 20 largest customers contributing 26% (2013: 25%) of
revenue in 2014. No single customer contributes more than 4%
of group revenues.
Performance by Segment
Following the 2013 reorganisation, the Group has revisited
its cost allocation methodologies during the year to better
represent how shared costs and services are consumed by each
segment. In accordance with IFRS 8, the operating segments for
the comparative period have been restated.
Again, following the 2013 reorganisation, the Group now has
two reportable segments:
Language Services (contributing £146.8 million or 56% of total
revenue and £26.3 million of PBTA) (2013: contributing £150.5
million or 56% of total revenue and £24.6 million of PBTA).
Segment revenue reduced by 2% in the year, comprising
an underlying increase of 2% at constant currency and a 4%
adverse foreign exchange impact. Revenue growth has been
strongest in Europe which grew at 5% on a constant currency
basis.
The strong second half margin performance seen in 2013
continued into 2014. Gross margins have recovered to 45.5% as
the benefits of operational initiatives including expanded use
of automated translation technology, new workflow efficiency
tooling and use of low cost production centres have been
realised.
Segment PBTA margin increased to 17.9% (2013: 16.3%) on a
constant currency basis.
New client wins include Rentokil, Intel and China Southern
Airlines.
Technology (contributing £113.6 million or 44% of revenue and
losses of £9.8 million PBTA) (2013: contributing £115.6 million or
44% of revenue and losses of £16.4 million PBTA).
Segment revenue reduced by 2% in the period, comprising an
underlying increase of 3% at constant currency offset by a 5%
foreign currency impact.
The Group has maintained investment in its sales, marketing
and operations teams in the period. Several key commercial
measures have improved demonstrating sales momentum and
improved revenue visibility of the business for the future:
Fig 1 Operating Cash Flow
Fig 2 Revenue
(£3.9m)
£0.7m
£11.8m
£6.8m
(£12.5m)
£9.7m
O
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£266.1m
£260.4m
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Strategic Report
9
• Bookings were £99.3 million for the year, an improvement of
14% on the prior year (£87.0 million) at constant currency;
impairment (2013: impairment of £20.4 million in the Content
and Analytic Technologies segment).
• At the end of the year, Annual Recurring Revenue (ARR)
from SaaS and perpetual licence support and maintenance
contracts was £71.0m, up 14% (2013: £62.5 million) at
constant currency.
New client wins include ASOS, Bose, Specsavers, Lloyd’s Register
and Miami Heat.
Gross Margin
The Group’s gross margin was 57%, an increase from 55%
in 2013.
Administrative Expenses
Administrative costs excluding intangibles amortisation and
one-off costs reduced in 2014 to £130.7 million (2013: £137.4
million).
Earnings Per Share
Basic earnings per share when adjusted for one off costs and
amortisation of intangibles (“adjusted EPS”) increased by 488%
to 15.1 pence. Basic earnings per share was 8.03 pence (2013:
loss, 34.78 pence).
Financing Costs
Interest costs in 2014 were £0.4 million (2013: £0.5 million).
At the start of the year, drawn borrowings were £20.0 million.
During 2014, we repaid £11.0 million and drawn borrowings
were £9.0 million at the end of the year.
Net cash was strengthened to £13.1 million at year end (2013:
net debt of £1.8 million).
Cash flow
Research and development costs of £28.1 million (2013:
£28.8 million) are included in administrative expenses. During
the year, the Group issued 57 product releases with greater
functionality being deployed. We have adopted a continuous
release programme for our SaaS products which improves our
customers’ experience by delivering releases quicker and more
effectively than in prior years.
The Group generated £22.2 million from operations during
the year (2013: £15.8 million). This cash inflow was net of £3.0
million of exceptional cash outflows arising from the 2013
Group restructuring,
income balances
and accruals, and £0.6 million to fund the cash settlement of
retention share plans. Pre-tax cash conversion, measured after
capital expenditure, rose to 93% from 72% in the prior year.
increased deferred
Development costs have been reviewed and the Board remains
of the opinion that capitalisation criteria under International
Accounting Standard (IAS) 38 are not met. Consequently no
development costs are capitalised on the balance sheet.
Headcount was 3,349 at the end of 2014, compared to 3,205
at the end of 2013. Employee related costs remain the most
significant component of Group costs, amounting to 66%
of Group overheads (2013: 67%) excluding amortisation of
intangibles.
Intangible assets ascribed to certain of the Group’s software and
customer relationships arising from acquisitions are amortised
over periods of between 5 and 10 years and the carrying value
is formally reviewed on an annual basis to assess whether there
are indicators of impairment. The intangible asset amortisation
charge in 2014 was £7.1 million (2013: £7.5 million).
Intangible assets and goodwill were allocated to two Cash
Generating Units (“CGU”) namely Language Services and
Technology. The 2014 impairment review resulted in no
Surplus cash generated, after deducting net income tax paid
of £3.9 million (2013: £10.3 million) and investing activities of
£2.6 million (2013: £7.1 million) and funding activities, has been
used to repay most of the Group’s bank borrowings. £11 million
was repaid in 2014 and further £6 million in January 2015.
Borrowing Facilities
The group’s current borrowing facility is a revolving credit facility
of £30 million expiring in September 2015. £9.0 million of this
facility was drawn at the year-end and has been substantially
repaid in early 2015.
Pricing of this £30 million borrowing facility is between 1.3% and
1.9% above LIBOR dependent upon the ratio of the Group’s gross
borrowings to its earnings before interest, tax, depreciation and
amortisation. Under the credit facility agreement, SDL is subject
to certain financial covenants which are required to be tested
quarterly. These covenants relate to EBITA: Borrowing Costs; Net
Cash Flow: Debt Service Liability and Gross Borrowings: EBITDA.
The Board remains of the opinion that operating with low levels
Fig 3 Analysis of Revenue by Segment
Fig 4 Geographic Split of Sales by Destination
12%
2013: 12%
5%
2013: 6%
A
E
D
16%
2013: 14%
B
34%
2013: 32%
56%
2013: 56%
A
B
44%
2013: 44%
A Technology
B Language Services
C
33%
2013: 36%
A UK
B Europe
C USA
D Canada
E Rest of World
ROW
Canada
USA
Europe
UK
Strategic Report
10
Annual Report 2014
of debt is appropriate in the current economic environment,
whilst maintaining sufficient debt facility headroom to finance
normal investment activities.
Derivatives and other Financial Instruments
The Group has cash and short-term deposits of varying durations
to fund its working capital needs and other financial assets and
liabilities such as trade receivables and trade payables arising
directly from its operations. The Group’s policy is that no active
trading in financial instruments will be undertaken within the
operating units and all decisions on use of financial instruments
will be taken at Group level under the direction of the Chief
Financial Officer.
Taxation
SDL is a global business and, as such, the Group’s effective tax
rate is heavily influenced by the territorial mix of operating
profits earned together with management judgement of the
extent to which the Group’s tax losses are likely to be utilised
with reasonable certainty. A detailed analysis of the taxation
charge is included in note 4 to the accounts.
The tax charge for the year is £2.8 million (2013: £3.5 million).
This charge includes an increased recognition of deferred tax
assets.
Trados Litigation update
As reported previously, the group has ongoing litigation related
to the Trados acquisition.
The Group has taken part in a mediation process during the
year and a settlement in principle has been agreed subject to
legal completion and Court ratification.
DIvidend
A final dividend for the year ended 31 December 2014 of
2.5 pence per share will be proposed at the Annual General
Meeting.
Fig 5
Operating Margins before amortisation
and one-off costs
Fig 6
Development in Fully Adjusted EPS Year on Year
(pence per share)
%
4
7
1
.
%
3
7
1
.
%
7
3
1
.
0
7
4
3
.
3
2
8
3
.
1
4
5
3
.
%
1
3
.
%
3
6
.
0
1
5
1
.
7
5
2
.
2010
2011
2012
2013
2014
2010
2011
2012
2013
2014
Strategic Report
11
Case Studies
Schneider Electric provides Personalized Customer Experiences with SDL Customer
Experience Cloud
Schneider Electric, a global specialist in energy management,
selected SDL’s Customer Experience Cloud to personalize its
communications with customers across the globe.
Schneider Electric is committed to providing a single, unified
organization across its operations in more than 100 countries.
However, with continued growth and numerous business
units, the company was experiencing fragmented messaging
that was difficult to personalize for each individual customer.
To overcome this customer experience challenge, Schneider
Electric turned to SDL to provide a unique and meaningful
web solution to its target audiences, drive contextual customer
engagement and enable self-service and troubleshooting to
enhance the overall customer experience.
“ Our customers are our number one priority at Schneider
Electric, and to ensure they remain top of mind, we
created a Digital Customer Experience division,” said Chris
Leong, EVP, Digital Customer Experience at Schneider
Electric. “We are passionate about continuously evolving
our web experience to our customers and are pleased
to work with SDL on a global, cross-channel content
management strategy to help transform our website into a
simplified, targeted, relevant and engaging experience.”
SDL’s Customer Experience Cloud allows Schneider Electric
to execute on its customer strategy objectives, which include
improving customer experience, agility and efficiency to
help grow the business. A component of SDL’s Customer
Experience Cloud, Schneider Electric utilized SDL WorldServer,
which simplifies and accelerates localization processes for any
content, enabling organizations to centrally manage, automate
and control high volumes of translation projects. Schneider also
implemented SDL Tridion Web Content Management (WCM),
allowing control of the entire digital ecosystem from one place
with SDL SmartTarget personalization and content targeting.
“ At SDL, we understand what is needed for a personalized,
multi-channel customer strategy and we are committed
to helping our customers provide those seamless
experiences by aligning the right technical strategy and
solutions to overall organizational goals,” said Dennis
van der Veeke, CTO at SDL. “No matter where or how
customers interact with a company, it is critical that
each experience is relevant for that individual customer
and the context of their interactions. We are pleased
to help Schneider Electric engage with its customers
throughout their journeys, allowing them to take customer
relationships to the next level by delivering individualized,
contextually relevant experiences.”
House of Fraser
House of Fraser is the leading national premium department
store group in the UK and Ireland. They selected SDL Customer
Experience Cloud (CXC), SDL SmartTarget and SDL translation
services to support its multichannel customer engagement and
international expansion strategies. SDL will deliver customer
targeting, profiling and personalisation in addition to website
translation services to ensure House of Fraser’s ecommerce
customers receive consistent, high quality, localised content
to significantly improve the customer experience across any
channel and device.
With a history dating back more than a century, House of
Fraser is a true household name in the retail industry and this
partnership shows how brands of such stature can effectively
adapt to digital trends. Our integrated suite of solutions will
help House of Fraser better understand its customers’ needs
for increased engagement online, providing the customised
shopping experience so many digitally savvy shoppers now
crave.
Strategic Report
12
Annual Report 2014
Philips Healthcare felt the SDL testing center was the perfect choice for localizing and
verifying its newest device.
Philips Healthcare was preparing to launch its newest advanced
defibrillator/ monitor, and wanted to ensure a high-quality
user experience for its non-English speaking as well as English
speaking customers. Key to this was accurately localizing the
software; the voice prompts and remaining user interface for
markets around the world. Philips Healthcare is a long-standing
user of SDL software localization solutions but for this project,
the company wanted to take a new approach to ensure
efficient, cost-effective localization while satisfying stringent
regulatory requirements.
Working through the SDL testing center in Colorado, this global
leader was able to translate its new device into 21 languages in
record time while still meeting the highest levels of quality.
Philips Healthcare felt the SDL testing center was the perfect
choice for localizing and verifying its newest device. Already
using SDL Passolo and SDL Translation Management System
(TMS), the company appreciated being able to seamlessly work
these solutions into the process.
Key benefits received:
•
Saved over 50% in project costs
• 40% reduction in overall project time
• Maintained high quality of translations
•
Easily pinpointed translation consistency issues
• Centralized the testing process in a controlled environment
•
Less involvement required by Philips Healthcare employees
Over the years, Philips Healthcare has used a range of SDL
solutions and services for software & voice verification and
translation. As Tim Paiva, Senior Learning Products Developer,
Emergency Care Solutions, for Philips Healthcare explains, “We
work with SDL because of its translation expertise including in-
country contacts, infrastructure to support localization, know-
how working with multiple companies and best practices
when it comes to language technologies.” “With SDL, we have
a process that yields high quality translation possible in a cost-
effective and streamlined way,”.
Using SDL Language Solutions, Rentokil centralized the translation procurement and
management process
Rentokil Initial is a large business services company, with annual
revenues of over £2 billion, providing pest control, hygiene,
work wear, landscaping and medical products and services to
corporations in over 60 countries.
After years of struggling to find a quick and affordable way
to standardize its global translation process, Rentokil Initial
sought professional advice from SDL. The global brand found
that an ad hoc, decentralized approach to content localization
was costing far more money and time than it should and was
impacting customer experience.
According to Richard Gregory, Head of U+ at Rentokil Initial
“Because we were paying huge sums for translations globally,
our main goal was to provide a better way of communicating
with our global customers and better
leverage existing
translations. We needed a simple, straightforward way to get
on top of the translation process and use it as an enabler of
international business expansion.”
SDL WorldServer was chosen to manage, automate and control
the company’s high volume of translation projects to ensure
on time and on budget performance. SDL BeGlobal was
also chosen to take advantage of content where fast, quality
machine translations would suffice.
Using SDL Language Solutions, Rentokil centralized the
translation procurement and management process and in
a short space of time, began to receive global savings of up
to 35%.
In the first six months using SDL Language Solutions,
Rentokil Initial translated over a million words and built up a
comprehensive reusable translation database of words, phrases
and messages in multiple languages, yielding significant
cost savings. Additionally the company has been enabled to
translate more content more quickly for both internal and
external customers and this in turn has helped Rentokil Initial
to provide a far better user experience.
Strategic Report
13
Risk Management
Principal Risks and Management Control
During the year under review, the Board of SDL PLC had overall
responsibility for establishing and maintaining an adequate
system of internal controls within the group and they participated
in the review of internal controls over financial reporting and the
preparation of The Annual Report.
The effectiveness of the system within SDL PLC was kept under
review through the work of the Audit Committee. The system
of internal control is designed to manage rather than eliminate
risk. In pursuing these objectives, internal control can only
provide reasonable and not absolute assurance against material
misstatement or loss. The key risks and uncertainties shown
below are those the Board considers to be of greatest significance
to the current SDL Group. They have the potential to materially
affect the business and the delivery of its strategy. For each risk
there is a probability of its occurrence and the potential financial
and reputational impact.
The risk management framework and internal control system is
subject to continuous review and development. The company
is committed to ensuring that a proper control environment
is maintained. There is a commitment to competence and
integrity and to the communication of ethical values and control
consciousness to managers and employees.
HR policies underpin that commitment by a focus on enhancing
job skills and promoting high standards of probity among
staff. In addition, the appropriate organisational structure has
been developed within which to control the businesses and
Framework
Board
Audit Committee
Executive Committee
Sets strategic
objective and
agrees
acceptable
risk profile
Monitors risk
management policies
and procedures against
strategic objectives
Regular review
of operational
and strategic risk:
identification /
analysis / evaluation /
mitigation
to delegate authority and accountability, having regard to
acceptable levels of risk.
The Company’s expectations in this regard are set out in our Code
of Conduct, a policy document which has been distributed to all
employees of the company.
SDL has fraud and anti-bribery policies and procedures in place to
ensure that all incidences of fraud and bribery are appropriately
investigated and reported, if appropriate via the Whistleblower
Policy. This policy, which is applicable to employees of the
company, covers the reporting and investigation of suspected
fraud, bribery, and misappropriation, questionable accounting,
financial reporting or auditing matters, breaches of internal
financial control procedures, and serious breaches of behaviour
and ethical principles.
No risk management process can fully eliminate risk but the Board
believes that it has an effective framework that will recognise,
minimise and mitigate the effect of risk should it occur.
Management of risk at SDL
Throughout the year the Board, via the Audit and Executive
Committees, reviews and evaluates the major risks faced by the
Group and the controls and mitigation plans in place. As part of
this process, the most significant risks are documented on a Risk
Register. It is this Risk Register which is reviewed by the Board.
The Audit Committee:
•
•
reviews aspects of the risk management and control system
at its meetings and at least once a year reviews the systems’
effectiveness on behalf of the Board.
receives presentations on specific key risks, reports from all
internal audits and external audit reports from KPMG.
The Executive Committee, consisting of the executive directors
and other senior managers meet regularly to discuss strategic and
operational matters and associated risks to delivery of strategy.
Members of the Executive Committee are regularly invited to
Board meetings to discuss the operational performance of their
business unit or functional area.
Delegates
authority
Receives and reviews risk
register
Reporting to the Board
and Audit Committee
Other internal controls include:
Approves
group
policies and
procedures
Receives and
reviews risk
register
Inputs
i fi c ation
t
n
Id e
n
o
i
t
a
g
i
t
i
M
A
n
a
l
y
s
i
s
ti o n
Eval u a
Annual budgets and 3-year financial plans are submitted to the
Board for approval.
Monthly management accounts showing performance against
budget, forecast and prior year are distributed to the Board.
Comprehensive worldwide insurances are in place and the cover
appropriate to the Group regularly reviewed.
Regular summaries of litigation including progress and potential
outcome are reported to the Board.
Reporting
Credit control – significant credit risks are reviewed by Group
Finance and, where appropriate, risk limitation action taken.
A Code of Conduct policy outlining SDL’s commitment to high
ethical standards which encompasses anti-bribery and corruption
is embedded into employee induction and training processes.
Strategic Report
14
Annual Report 2014
Group policies and procedures covering a range of matters,
including whistleblowing, are available to staff on the intranet.
Principal risks
Business continuity and disaster recovery plans are in place
to minimise the risk of business interruption and contract
performance in the event of an incident and how the Group
expects to return to ‘business as usual’ in the quickest possible
time afterwards.
The nature of SDL’s business and the continually changing
environment in which the Group operates means that the list
cannot be exhaustive. SDL faces risks and uncertainties which
affect all businesses and are not specific to SDL’s market. These
non-specific risks are not listed as key risks but SDL, along with
other businesses, faces these too.
Risk
Mitigation
2014/2015 Activity
Strategic risks
Description
Market Trends –
economic and financial.
Customers – changes
in their technology
investment trends/long-
term relationships.
Failure to forecast market
cycles or changes
when developing new
technology will impact
operations.
Shifting market trends
impacts on customers’ IT
investments.
Competitors – price /
technology /intellectual
property.
Intense competition and
fast paced technological
innovation may cause
prices for products and
services to decline.
Partners – procurement
and licensing.
SDL aims to be a valued
and trusted business
partner and provide
products and solutions
across the IT lifecycle.
Failure to renew contracts
or maintain trusted
relationships could affect
sales and profitability.
The Group implements structural reforms
to respond to respond to forecasted market
changes.
Strategic opportunities are
regularly reviewed by the Board.
The Group invests in research and
development and has well integrated and
planned innovation roadmaps and stringent
delivery checkpoints.
Product development needs
identified via customer input and
external research. SaaS products
moving to a continuous release
model in 2014. The Group invested
£28.1 million in R&D in the year
(2013: £28.8 million).
Customer sales cycles are reviewed regularly
to monitor and maximize customer revenue
opportunities.
In 2014 we hired an additional 81
sales and presales employees to
enhance our sales capability.
Anticipating price pressure on services and
costs of cloud computing. We pursue a variety
of measures to reduce costs and expand sales
derived from an awareness of customers’
needs.
We have introduced an internal
sales certification programme,
to improve the level of expertise
across our sales force.
A variety of measures have been taken to
strengthen the resiliency of the supply chain
including multiple long-term supplier and
partner contracts and regular reviews of
master service agreements.
Global Procurement function works
with key business stakeholders to
control costs.
Operational Risks
Description
Risk
Mitigation
2014/2015 Activity
Recruitment, retention
and development of high
quality staff to support
the growth of the
business.
Inconsistent leadership,
inadequately trained
staff or employee
attrition that prevents
delivery of strategic
business objectives.
The Group endeavours to provide relevant
experience for future senior or key roles,
competitive remuneration structures
including long and short term incentives, and
ensures that there are open and transparent
assessments, development plans and
promotion opportunities that encourage
employees to want to build long term careers
with SDL.
HR team in place with global reach.
Attrition rates in key areas reviewed
and actions to address in place.
International industry-recognised
profiling tools to hire against
required competencies.
Talent review and succession
management process rolled out
in 2015.
System interruption
and business continuity
planning and policies for
dealing with business
interruption.
A significant unplanned
outage that causes
a major business
continuity issue.
The Group focuses on business continuity
planning and security of its data centre and
hosting facilities. Business continuity planning
considers alternative and distributed locations
in the event that a significant office is taken
out of operation. Due diligence in this area
gives confidence and demonstrates a duty
of care to customers and suppliers. Planning
helps to safeguard SDL’s reputation as well as
ensuring the company meets regulatory and
contractual obligations.
Successful implementation of a
scalable highly available email
system with built-in business
continuity; and highly available
internet connectivity with levels
of resilient connectivity in 2014.
Focus now on transitioning critical
business systems for finance,
operations and development
from local SDL facilities to highly
secure datacentres with improved
resiliency, high availability
and built-in disaster recovery
and failover.
Strategic Report
15
Data protection, data loss
and data security of both
client confidential and
Company confidential
data.
Loss of data, leak of
critical data or online
solutions are not secure.
Compliance Risk
Changes made to
laws, regulations or
standards worldwide
could adversely impact
the group’s capability or
the marketability of our
products.
Contract Management
and Litigation Control
Customer and supplier
contractual risk
exposure.
Solutions for specific situations are
incorporated into a systematic process which:
•
Examines SDL’s information security risks,
threats, vulnerabilities and impacts;
• Addresses unacceptable risks with a
comprehensive policy on control or other
form of risk treatment
• Adopts an overarching management
process to ensure that the information
security controls continue to meet the
business’ information security needs on an
ongoing basis; and
• Ongoing monitoring of availability and
security incidents.
Regular reviews ensure compliance
with group policies and applicable laws,
regulations and standards. Changes in
legislation are monitored with the help of the
Group’s financial and legal advisors where
necessary.
Our Code of Conduct guidelines are binding
for all employees worldwide. They are also
an expression of our values and lay the
foundation for our own internal regulations.
The Legal function ensures that customer
contracts are carefully prepared, reviewed,
negotiated and approved in line with internal
policies that have an escalation framework in
place for referral to senior management.
SDL maintained its certification to
ISO/IEC 27001 for the UK and is,
in 2015, transitioning to ISO/IEC
27001:2013.
SDL continues to expand the
scope of certification across other
products and regions.
There were no significant incidents
of non-compliance with legislation
or regulations in terms of financial
controls, corruption or product
liability in 2014.
Regular reporting to the Board on
litigation risks.
Financial risks
Description
Liquidity Risk
Risk
Mitigation
2014/2015 Activity
Cash reserves and
working capital are not
sufficient to repay debts
as they fall due. Funding
of future projects may
be limited.
The Group is cash generative. The
methodology for dealing with liquidity risk
through strong generation of free cash flow is
dealt with in note 24 to the accounts.
Emphasis on forecasting short,
medium and long-term cash
requirements and monitoring
headroom.
Continued attention on effective
billing and credit controls.
Review of banking facilities.
Facility agreement amended in
2014. Continuing regular and
appropriate dialogue has taken
place with financial counterparties.
Counterparty Risk
Principal risk is exposure
to RBS.
Multi-currency deposits held in a range of
financial institutions.
Credit ratings of the Group’s financial
counterparties reviewed periodically.
Interest Rate Risk
Profit and cash flow
effects of increased
interest rates on group
borrowing facilities.
Financial Reporting
System
Inadequate systems
and processes lead to
incomplete or delayed
reporting.
Ongoing assessment of debt requirement to
manage exposure.
The Group’s borrowings have been
substantially repaid.
Revolving loan facility with RBS in
place – see above.
Regular worldwide cash balance
reviews.
Further developments of the
financial reporting system and
enhancements to our sales/
bookings tool are planned in 2015.
The operational process for control over
financial reporting is led by the Chief Financial
Officer, who works through the Finance
Leadership Team to ensure there are a full
suite of policies and procedures in place
that are communicated. Monthly systems
and roadmap meetings ensure systems
developments are prioritised and monitored.
Strategic Report
16
Annual Report 2014
People
As a business we promise a superior customer experience to our
customers and firmly believe it is equally important to deliver
this promise internally. We are doing this by developing a high
quality ‘Employee Experience’ and a working environment
which is not only productive and rewarding, but also enjoyable.
A fantastic employee experience delivers highly engaged and
motivated employees which in turn deliver superior customer
experience.
Culture and Communication
SDL seeks to maintain high standards and good employee
relations wherever we operate. Regular and open
communication is fundamental to high levels of employee
engagement. During 2014, SDL rolled out company-wide
global business applications and invested in key areas of the
business which underpin SDL’s commitment to building
organisational capabilities. There are a number of mechanisms
to connect and share expertise on a company-wide basis:
• Monthly company performance and strategy presentations
by the CEO to all employees;
• Monthly newsletter sharing company-wide programs as
well as local initiatives with all employees;
•
Site Leaders, appointed to lead every SDL office to cascade
messaging at a local level and solicit feedback;
• Works councils and other employee forums maintained and
relevant performance and change issues are also discussed
with our employees through team meetings, round table
discussions or through works councils or other elected
representative bodies;
•
is embedded
The Code of Conduct
into employee
induction and for existing employees is reviewed regularly.
Our people have access to information about SDL’s policies
through a global intranet, with local translations and
content where appropriate;
• A whistleblowing policy
in place which enables
is
employees to bring matters of concern to the attention of
the Senior Independent Director in confidence. No matters
were raised via this route in 2014. The Board are reviewing
the current procedures and practices for dealing with
whistleblowing claims to ensure that potential issues are
captured and addressed as early as possible.
Employment Policies
The SDL Code of Conduct, applicable to all employees and
those who work for or on behalf of SDL, is a policy document
that sets out the standards of behaviour expected in relation
to areas such as insider dealing, bribery and raising concerns
through the whistle blowing process. Our employment policies
are developed to reflect local legal, cultural and employment
requirements.
The Chief Financial Officer has ultimate responsibility for Health
and Safety. Specific tasks are delegated to local office managers
and suitably trained individuals in the organisation.
The Group rejects all forms of discrimination and actively
encourage an equal opportunities policy. We expressly prohibit
discrimination on grounds such as sex, race, religion or belief,
age or perceived age, sexual orientation or disability.
Talent and development
SDL continues to place high emphasis on its employees and on
actively developing their respective skills, and competencies,
through various e-learning, training, coaching and mentoring
initiatives which operate across the company.
SDL is also committed to helping employees perform at
their best and achieve their full potential through ongoing
training and personal development plans linked to the SDL
Performance Management System.
•
•
•
Employees review and agree development objectives during
their annual performance dialogue with their manager;
SDL supports overseas assignments or secondment to
enable employees to benefit from a period overseas. We
have also seen continued movement of employees across
different operating segments in 2014, which is effective in
transferring best practice and sustaining culture;
The Management Development Training Programme
was extended in 2014. Overall, a total of 114 Managers
from 9 locations worldwide have taken part during the
last 12 months. This programme has now helped almost
500 members of SDL’s senior team to develop their
Management and Leadership competence and is set to
continue during 2015;
• 2013 saw the rollout of SDL’s Pathways Project Management
programme which is based on the Project management
Body of Knowledge (PMBOK) and is fully ISO & REP
Certificated. In 2014 177 Project Managers attended the
Foundation programme in 10 locations and 77 Project
Managers attended the
in
8 locations.
Intermediate programme
In January 2014, SDL Quality & Infrastructure group was formally
recognised by the Project Management Institute (PMI®), the
world’s largest project management member association,
as a provider of project management training known as a
Registered Education Provider (R.E.P.). As such SDL joins more
than 1,500 R.E.P.s in more than 80 countries. Recognition as
an R.E.P. demonstrates that Project Management training
provision at SDL has been reviewed and approved having met
PMI’s rigorous quality criteria for course content, instructor
qualification, and instructional design. As an R.E.P. SDL is now
pre-approved by PMI to issue Professional Development Units
(PDUs) for classroom training courses.
The Group continues to develop progressive relationships
with several language facilities of universities in the countries
in which it operates and supports translation as a profession.
This serves as a way for the Group to develop the translation
profession as well as providing a valuable potential career
outlet for students and a source of potential future employees.
Strategic Report
17
Gender Breakdown: Senior Management and All Employees
Female
Male
Female
Male
43%
Female
57%
Male
49%
Female
51%
Male
Senior Management
All Employees
•
•
•
SDL also sponsored 5 senior students from Seattle University
to automate the workflow between SDL’s social media tool,
SM2, and the SDL Customer Commitment Dashboard. They
developed SQL databases, web services and user interfaces
and succeeded in reducing engineer manual intervention.
SDL began a public-private partnership project with
Centrum Wiskunde & Informatica (CWI) to improve cloud-
based software for marketing purposes. In this joint project
both CWI and SDL contribute to the research budget.
The goal of the current research project is to develop an
automatic monitoring system for cloud applications to
support the decision process for allocating server space
from the cloud to applications. The approach followed
by CWI researcher Stijn de Gouw, which is based on his
dissertation, combines run-time assertion checking with
monitoring.
SDL’s relationship with the University of Bristol and the
University of the West of England is entirely focussed on
internship programs, where the research areas and goals of
the internship are determined on a per-case basis.
Disabled Employees
SDL values applications from disabled or handicapped persons
and our policy is to always consider in full employment
applications from disabled or handicapped persons where that
person can perform the job requirements.
Where existing employees become disabled, it is the Group’s
policy, wherever practicable to provide continuing employment
under normal terms and conditions and disabled people are
afforded the same training and development opportunities for
personal growth as other employees within the organization.
Under no circumstance will discrimination due to disability
either direct or implied be tolerated.
The SDL University Partner Program not only supports
universities and lecturers in the teaching of translation software
worldwide it also offers students help and advice on-the-way
to becoming language/translation professionals. The program
saw growth and enhancements during 2014 adding 25 new
universities as education partners bringing the total to over 350
worldwide in 66 countries.
The roll out of a series of newly developed free training
resources for the lecturers and the increasing number of
students asking to take advantage of the free SDL Certification
both show that our collaboration with universities provides a
strong foundation for the translation industry and translation
professionals. Sharing our knowledge about Computer Assisted
Translation tools and enabling the future professionals to start
their career as soon as they leave university is an integral part of
our commitment to our partners and customers.
SDL also hosted a “Translation Technology and Career
Development Day” at the Antwerp Campus of the KU Leuven
university in October 2014. Bringing all participants of the
translation supply chain together was a truly
interesting
experience and for all participants an engaging and inspiring day.
The Group also actively collaborates with universities and
research centres to promote research, solutions and assist
with recruitment for the language and technology areas of the
business.
•
•
SDL Research joined efforts with University of Southern
California, University of Colorado, and the Linguistic
Data Consortium to design and develop a semantic
formalism, Abstract Meaning Representation (AMR), aimed
at improving various natural language applications by
allowing for semantic language modeling while abstracting
away from morpho-syntactic idiosyncrasies.
SDL Research offers annually summer internships for
outstanding Ph.D. students in the field of Machine Learning
and Natural Language Processing. Previous interns joined
SDL Research from competitive programs at top universities
such as Carnegie Mellon University, University of Southern
California, John Hopkins University, University of Cambridge
and Heidelberg University.
Strategic Report
18
Annual Report 2014
Corporate Social Responsibility
SDL is committed to being a good corporate citizen in the
communities in which it operates, conducting business in
a socially and ethically responsible manner. SDL recognises
the value it gets from its continuing program of Corporate
Social Responsibility, both from the employee’s perspective
through improving staff engagement and morale and being
an employer staff can feel passionate about, and from the
perspective of clients who increasingly prefer to work with
companies who demonstrate core ethical values.
Our corporate social responsibility framework continues to
target three primary areas:
• We support communities through the SDL Foundation,
which aims to promote sustainable development;
• We promote and facilitate employee
involvement
in
charitable endeavours;
• We are committed to reducing our environmental impact.
In 2014 many SDL offices participated in charitable endeavours
to help people or organizations in their local communities. You
can see activities on our CSR page on www.sdl.com, but here
are a few examples:
•
Employees from the Sheffield, Bristol, Maidenhead and
Wakefield offices took part in the Palace to Palace 45 mile
bike ride to raise funds for The Prince’s Trust.
•
•
•
•
SDL Germany held several
for
BaanGerda to contribute to funds to build an Orphanage
in Thailand.
fundraising activities
SDL Vietnam supported the Tam Duc House of Hope by
raising money and visiting the orphanage to spend time
with a few of the babies cared for at the facility.
Ten colleagues from SDL Italy supported IL SOLE ONLUS by
translating reports on the children’s stories and progress for
their Italian sponsors.
Four colleagues from SDL Sheffield took part in the Sheffield
Half Marathon raising money for St Wilfrid’s Centre and
other SDL Sheffield colleagues set themselves up into three
teams and raised money over 5 months also for St Wilfrid’s.
•
•
For their nominated charity, One25, several employees from
SDL Bristol participated in ‘Give it up for 125’ – giving things
up for 125 days such as alcohol, chocolate or using the lift.
Others took on the Mendip Challenge (30 mile walk) and
the Bristol Half Marathon, all to raise funds.
SDL USA – Flatiron raised funds for Partners for Rural
Improvement and Development in Ethiopia (PRIDE) by
participating in the largest 10K marathon in the United
States, the Bolder Boulder. The funds will go towards
building more sustainable modular schools in Ethiopia.
• A team from the Kiev office recently participated in a
clean-up operation called ‘Let’s make Ukraine clean’ in a
central park. Several companies were involved and they
successfully managed to take away all the rubbish from a
territory in a central park.
• A team from the Sofia office participated in a corporate
running relay race alongside many other companies raising
money for a local UNICEF initiative.
Strategic Report
19
•
The Bangalore office celebrated ‘Environment Day’ by
distributing balcony and outdoor plants to all staff. This
is part of the office’s initiative called ‘Climate Change
Awareness’ designed to educate employees about climate
change and how they can make a positive difference to the
environment.
•
•
Seven colleagues from SDL Finland took part in the annual
‘Hunger Day Collection’, a three-day event where volunteers
take to the streets to raise money for the Red Cross.
SDL CEO, Mark Lancaster, and Roddy Temperley, Global
Head of Employee Experience and Human Resources
completed the Ice Bucket Challenge and then nominated
all the SDL office Site Leaders. Leaders had a bucket of ice
water dumped over their heads to raise awareness of ALS,
a progressive neurodegenerative disease that affects nerve
cells in the brain and the spinal cord. Funds raised will be
used in research to combat the disease.
The Board has overall ownership of the Corporate Social
Responsibility strategies and takes very seriously its broader
responsibility to society and takes a progressive approach in
ensuring it meets its broader social obligations. The Board
continues to hold the opinion that given the nature of the
involve heavy
Group’s business activities, which do not
manufacturing, material risks from social, environmental and
ethical issues are limited.
Strategic Report
20
Annual Report 2014
SDL Foundation
2014 was another successful year for the SDL Foundation. We
continued to partner with charities and projects to support
projects in disadvantaged communities across the world. We
also put a strong emphasis on employee engagement and
collaborated with SDL’s corporate social responsibility (CSR)
programme to enhance awareness of the SDL Foundation and
increase employee involvement from SDL’s global offices in
CSR activities.
The SDL Foundation’s main focus is to support applications,
initiated by SDL employees, to fund structural and sustainable
projects, enabling the recipients to better them and their
family’s
income generating activities or
educational and vocational training assisting them to achieve
full-time employment and improve their quality of life.
future through
Projects in 2014 include:
• Microloan Foundation – the SDL Foundation’s funding
has helped Microloan to establish thriving loan offices
in rural Malawi and Zambia and provide entrepreneurial
training to encourage impoverished women to run small
and sustainable businesses to enable them to provide for
themselves and their families.
• Gua Africa – South Sudan is one of the worst countries in
the world in terms of educational facilities and the SDL
Foundation agreed to fund a four year teacher training
programme, which has seen five young refugees from
South Sudan undertake a degree level University course
in Nairobi, Kenya. The grant has covered their tuition fees,
text books and the cost of accommodation. The students
have now graduated and with their new qualification, skills
and knowledge they can not only educate thousands of
children but they can also help train other teachers.
Hatua Likoni – the SDL Foundation has helped Hatua Likoni to
sponsor approximately 200 secondary and university students
during 2014. The students come from disadvantaged families
in an extremely deprived area of Mombasa, Kenya. Hatua
Likoni also provides them with out-of-school mentoring and
internship opportunities, which enables the pupils to graduate
from University and use their educational skills to give back to
the community and contribute to Kenya’s growing economy.
As a result of this work academic results are significantly above
the local and national averages.
Employee Engagement
Wherever possible the SDL Foundation seeks to support
projects where SDL employees are able to participate in the
projects as well as organise fundraising events to complement
the funds provided by the SDL Foundation. The following
examples highlight key employee-led endeavours supported
by the SDL Foundation:
•
•
•
The SDL Foundation continued its financial involvement
with the Prince’s Trust to enable employees to be actively
interview and CV training to
involved
disadvantaged young people seeking work or vocational
training.
in providing
The SDL Foundation was pleased to help support the Cluj
Build project run by the Habitat for Humanity organisation,
a social house building scheme in Romania. Approximately
100 SDL employees from the SDL Cluj office participated
in a week long “crowd building” project resulting in the
provision of accommodation for a family striving to alleviate
poverty; having a secure home from which to work will
enable them to provide for their family.
The SDL Foundation’s links with the BeadforLife charity has
grown from the basic funding of ox ploughs and modern
seed technology to a worldwide fundraising project led
by employees in many of the SDL offices. In December
2014, 13 SDL offices took part in a Global Bead Sale, selling
handmade beads made out of colourful recycled paper,
to support women in Uganda. The money raised helps to
provide training and coaching to help the women expand
their business, oxen and ploughs to increase farming
income and sponsorship for young girls to attend school.
Strategic Report
21
Environment
Measuring and reporting energy efficiency, carbon and greenhouse gases (GHG).
Throughout our operations we strive to meet, or exceed, relevant legislative and regulatory environmental requirements and codes
of practice. Our businesses have environmental systems in accordance with ISO 14001.
Our carbon emissions are low compared to other sectors, but they’re still our biggest environmental impact and we work to improve
energy efficiency across the whole Group.
In calculating our 2014 global footprint we have extended the scope to measure the emissions from 6 main offices and extrapolated
for the remaining emissions to cover all of our offices worldwide based on company revenue.
The data below covers the 12 month period ending 31 December 2014 and is presented, where possible for comparison, alongside
the data for 2013.
.
2014 Headline Results
SDL’s worldwide GHG emissions for the period were 8,647.6 tonnes of CO2e, comprised of the following;
Global Footprint tCO2e
24% 27%
Activity
Electricity
Travel
Commuting
Other
tCO2e
2,354.3
2,392.2
1,809.6
2,091.5
8,647.6
21%
28%
Using an operational control approach, we assessed our boundaries to identify all of the activities and facilities for which we
are responsible. Relevant activity data were identified and collected and provided to our independent consultant, Carbon Clear.
The validity and completeness of the data were checked by Carbon Clear and used to calculate the carbon emissions for the
Group worldwide. The calculations performed follow the ISO14064 methodology and give an absolute and intensity factor for the
Group’s emissions.
The results show that GHG emissions in the period were 8,647.6 tonnes of CO2e, comprised of the following;
Scope 1 & 2 – Combustion of fuels & operation of facilities.
• Direct Emissions (Scope 1) were 106.5 tonnes of CO2e or 1.2% of the total.
•
Indirect Emissions (Scope 2) were 2,354.3 tonnes of CO2e or 27.2% of the total.
Scope 3 – Additional Activity Data Reported
• Other, Indirect Emissions (Scope 3) were 6,186.8 tonnes of CO2e or 71.5% of the total.
Strategic Report
22
Annual Report 2014
The table below gives a more detailed breakdown of the emissions by activity.
Type of Emissions
Activity
Gas
Diesel
Direct (Scope 1)
Pool Cars/Company Vehicles
Indirect Energy (Scope 2)
Refrigerant
Subtotal
Purchased Electricity
Subtotal
Business Travel
Commuting
Indirect Other (Scope 3)
Additional Upstream Activities
Other
Subtotal
Total Emissions (tCO2e)
2014 tCO2e
2013 tCO2e
89.0
0.0
17.5
–
106.5
2,354.3
2,354.3
2,392.2
1,809.6
1,268.3
716.7
6,186.8
8,647.6
212.1
0.0
26.9
164.5
403.5
2,681.9
2,681.9
1,508.5
2,235.0
–
462.4
4,205.9
7,291.3
Intensity metrics of SDL’s global operations based on Full Time Employees (FTE):
2014
2013
Percentage change from 2013/2014
The reasons for this increase are:
Tonnes CO2e
8,647.6
7,291.3
Staff (FTE)
3,245
3,177
tCO2e / FTE
2.6
2.3
13.0%
•
•
•
increase in business travel
changes to the emission factors published by DEFRA
improved accuracy of data collection (number of sites increased to 6)
The graphs below provide a comparative analysis of 2013 and 2014 emissions for the Head Office in Maidenhead and five main office
sites. To allow for accurate year on year comparisons, the 2013 footprint has been recalculated with actual data from November and
December 2013 (previously extrapolated). Data for most activities in 2014 cover a 10 month period and has been extrapolated to
provide the full year figures.
Head office footprint 2013/2014
SDL five main sites* footprint 2013/2014
Electricity
–0.9%
Commuting
– 12.7%
Business
Travel
– 46.6%
Other
–17.9%
Additional
Upstream
Activities
– 14.5%
.
2
3
8
3
.
9
9
7
3
.
3
2
0
4
.
4
1
5
3
9
1
3
.
9
3
3
2
.
1
0
0
2
.
2
0
7
1
.
7
5
5
1
.
9
7
2
1
2013 2014
2013 2014
2013 2014
2013 2014
2013 2014
500
400
300
200
100
0
e
2
O
C
f
o
s
e
n
n
o
T
1200
1000
800
600
400
200
0
e
2
O
C
f
o
s
e
n
n
o
T
Electricity
–5.36%
Commuting
– 11.88%
Business
Travel
78.72%
Other
–15.73%
.
2
9
5
1
1
,
2014
2013
.
2
3
5
1
1
,
.
4
1
9
0
1
,
2014 tCO2e
2013 tCO2e
.
0
1
6
9
.
8
6
4
8
.
6
8
4
6
.
5
2
7
3
.
9
3
1
3
.
7
5
5
1
.
9
7
2
1
2013 2014
2013 2014
2013 2014
2013 2014
1,494.1
1,229.5
–17.7
3,135.3
3,411.3
+8.80
Total tCO2e
2013
Total tCO2e
2014
Change
%
Total tCO2e
2013
Total tCO2e
2014
Change
%
This Strategic Report is approved by the Board of Directors and signed on its behalf by
Dominic Lavelle
Director
10 March 2015
*Ireland, Japan, Netherlands, UK, USA
Governance
23
Alan McWalter joined SDL as the Senior Independent Director
on 1 March 2014. He sits on the Audit and Remuneration
Committees and is Chairman of the Nomination Committee.
Glenn Collinson joined SDL as a non-executive director and
Chairman of the Remuneration Committee on 1 June 2014. He
also sits on the Audit and Nomination Committees. We look
forward to their contributions to the next stage in the growth
of the Group.
David Clayton
Chairman
Governance
Chairman’s overview
On behalf of the Board I’m delighted to present our Corporate
Governance report for 2014 and confirm our compliance with
the UK Corporate Governance Code.
It is my pleasure to lead a talented Board with the combination
of expertise and experience to drive the Group forward.
As Chairman I am responsible for ensuring that your Board
operates in an effective, transparent and ethical manner, and
that we make our decisions based only on what we believe is
likely to be for the benefit of shareholders by promoting and
maintaining the long–term success of the Company. We can
only achieve this within a strong governance framework and
we maintain robust processes and procedures to support the
principles of good corporate governance.
Good governance means more than merely complying with a
set of rules and regulations, and we seek to embed within our
business a culture that ensures colleagues across the Group
continue to behave in an ethical and principled manner and
in compliance with our governance and risk management
processes.
Whilst we have a clear strategic path, it is essential to
continually develop and evolve the Board to make it relevant
and appropriately experienced in the light of both our short-
term and longer-term business strategy. To that end we are
delighted to welcome Alan McWalter and Glenn Collinson
as non-executive directors. They have extensive and highly
relevant experience and bring a fresh and new perspective to
the Board and its Committees.
Corporate Governance
SDL PLC is required to report on how it has applied and complied with the provisions of the UK Corporate
Governance Code 2012 (the Code) in force for the year to 31 December 2014. The Code sets out the main
principles and specific provisions on how companies should be directed and controlled in order to follow good
governance practice.
The Board considers that SDL PLC complied with all provisions of the Code throughout the year to 31 December
2014 and the following Governance report together with the Directors’ Remuneration report explains how.
Governance
24
Annual Report 2014
Board of Directors
David Clayton
Chairman | Non-executive director
Tenure: 5 years (appointed December 2009)
Board Committees: Audit and Nomination
David Clayton was appointed non-executive Chairman of SDL PLC in
July 2013. He joined SDL as a Non-executive Director in December 2009
and served as Senior Independent Director from April 2012. After a
career in senior executive roles at a number of international technology
companies he joined BZW where, after its merger with CSFB in 1997, he
was Managing Director and Head of European Technology Research until
2004. David Clayton joined The Sage Group plc Board in June 2004 as
a Non-executive Director and took up his executive role as Director of
Strategy and Corporate Development from October 2007 to February
2012.
Mark Lancaster
Chief Executive Officer (“CEO”)
Tenure: 23 years (appointed January 1992)
Board Committees: None
Mark Lancaster founded the company in 1992, having identified the need
for a high-level technology and solutions provider managing business’
content in global markets. Mark is a graduate in electrical and electronic
engineering. He started his career as an electronics and computer design
engineer before moving into project management at Lotus Development
Corporation and
international development director with
Ashton-Tate. He is responsible for the strategic direction and operational
management of the Group.
later as
Dominic Lavelle
Chief Financial Officer (“CFO”)
Tenure: 1 year (appointed November 2013)
Board Committees: None
Dominic Lavelle is a qualified Chartered Accountant who joined SDL in
November 2013. Previously, Dominic has held CFO roles within a number
of private and publicly traded companies including Mothercare plc, Alfred
McAlpine plc, Allders plc and Oasis plc where his roles have encompassed
commercial, operational and strategic responsibilities.
Governance
25
Chris Batterham
Non-executive director
Tenure: 15 years (appointed October 1999)
Board Committees: None
Chris Batterham is a Chartered Accountant with significant experience in
the business services sector. He was finance director of Unipalm plc, the
first internet company to float on the London Stock Exchange, and, latterly,
Chief Financial Officer of Searchspace Group until 2005. He currently holds
a number of non-executive directorships including Office 2 Office plc,
Toumaz Holdings Ltd, Iomart plc and is Chairman of Eckoh plc.
Glenn Collinson
Non-executive director | independent
Tenure: Appointed June 2014
Board Committees: Chairman of Remuneration, Audit, Nomination
In 1998 Glenn Collinson co-founded Cambridge Silicon Radio (CSR plc) as a
start-up project and was a member of the board of directors that managed
the growth of CSR through its listing as a public company in 2004 and up
until 2007, serving first as Marketing Director and then as Sales Director. Prior
to CSR plc, he held positions including Senior Engineer and then Marketing
Manager at Cambridge Consultants Ltd and held positions as a Design
Engineer and Marketing Manager at Texas Instruments. He is a member of
the Institution of Engineering and Technology and holds a B.Sc. in Physics and
a M.Sc. in Electronics from Durham University, as well as a MBA from Cranfield
University. Mr Collinson currently holds other non-executive director positions
within the technology sector.
Mandy Gradden
Non-executive director | independent
Tenure: 3 years (appointed January 2012)
Board Committees: Chairman of Audit, Remuneration
Mandy Gradden is an experienced corporate CFO with more than 20
years financial and senior management experience. In January 2013
she was appointed Group CFO of Top Right Group the private-equity
owned B2B media and events business. Previous roles include: CFO of the
private-equity owned Torex, the retail technology firm; CFO at the FTSE
250 business and technology consultancy, Detica; Director of Corporate
Development at Telewest Communications; and Group Financial
Controller at Dalgety. She began her career at Price Waterhouse, where, in
1992, she qualified as a Chartered Accountant.
Alan McWalter
Non-executive director | Senior independent director
Tenure: Appointed March 2014
Board Committees: Audit, Remuneration and Chairman of Nomination
Alan McWalter is currently Chairman of Churchill China plc, and the Senior
Independent Director at Dignity Plc. He also holds non-executive director
positions with several private companies. Prior to this Mr McWalter has
held non-executive roles in Trafficmaster Plc, Cattles Plc and Timeweaver
Plc and been an executive director in a number of major companies
including Thomson Consumer Electronics, Kingfisher and Marks &
Spencer.
None of the directors have been accused of, or been reported as, acting in breach of professional conduct by any regulatory or statutory authority.
Governance
26
Annual Report 2014
The Board
is accountable to
The Board of Directors of SDL PLC
shareholders and other stakeholders for the long-term success
of the Company. Their responsibility includes the key areas of
strategy, performance, resources, and standards of conduct. The
Board also has ultimate responsibility for corporate governance
which it discharges either directly or through its Committees
(described in the following pages of this Governance report).
The current Directors’ biographies are set out on pages 24 and
25. The Board is satisfied that each Director has the necessary
time to devote to the effective discharge of their responsibilities
and that between them the Directors have a blend of skills,
experience, knowledge and independence suited to the
Company’s needs and its continuing development.
Roles within the Board
The Chairman is responsible for running the Board. The Chief
Executive Officer is responsible for the operations of the Group
and for the development of strategic plans and initiatives for
consideration by the Board.
The Senior Independent Director (SID) provides a sounding
board for the Chairman and a focal point and intermediary for
the concerns of the other non-executive directors. The SID has
regular dialogue with the Chairman on current issues. He is
also available to shareholders should they have any concerns
which have not been resolved through the normal channels of
Chairman or Chief Executive or if the normal channels may be
inappropriate.
The non-executive directors have a key role in scrutinising
management’s performance in meeting agreed goals and
objectives, providing a constructive challenge where necessary.
They must also be satisfied with the integrity of the Group’s
financial information and the robustness and defensibility of
financial and non-financial controls and risk management
systems.
The non-executive directors are considered by the Board to
be independent of management and free from any business
or other relationship which could materially interfere with
the exercise of their independent judgement. They are not
eligible to participate in any of the Company’s share option or
pension schemes. The Chairman also meets regularly with the
non-executive directors without the presence of the executive
directors.
Annual Re-election of Directors
All directors retire at each AGM and offer themselves for re-
election by shareholders. At the 2015 AGM all continuing
directors will be offering themselves for re-election (or election
in the case of Alan McWalter and Glenn Collinson).
The Board has established a formal “Schedule of matters
specifically reserved for decision by the Board” available on
our website (www.sdl.com). It has delegated other specific
responsibilities to its Committees and these are clearly defined
within the respective Committee’s terms of reference. These
terms of reference are formalised and reviewed from time to
time and available to view on our website. In addition to the
principal Committees (Audit, Nomination and Remuneration),
the Board from time to time establishes committees to deal
with specific matters on its behalf.
Extract from the schedule of matters reserved for the Board:
• Material acquisitions and disposal of assets.
•
Investments, capital projects, authority levels, treasury
policies and risk management policies.
• Dividend policy.
Board matters and delegation
Governance structure
BOARD
AUDIT COMMITTEE
NOMINATION COMMITTEE
REMUNERATION COMMITTEE
HEALTH & SAFETY
GROUP EXECUTIVES
SDL FOUNDATION
OPERATING DIVISIONS / FUNCTIONS
Strategic Report
27
• Non-executive directors’ remuneration.
Activities in 2014
The Board meets regularly throughout the year to discharge
its duties. It met seven times during 2014 and has met twice
between 31 December 2014 and the date of approval of this
annual report.
The Board’s framework agenda is determined at the beginning
of the year to ensure that certain items of business are
reviewed at appropriate intervals. Matters considered at all
board meetings include: CEO’s report on strategic and business
developments; CFO’s report based on the latest management
accounts; an operations update and, where applicable,
updates from the Board committees. The Board also receives
regular updates between scheduled meetings on a range of
matters from functional and operational senior managers.
Debate and discussion at the Board and Committee meetings
is encouraged to be open, challenging and constructive.
• Major items of discretionary revenue expenditure.
Information and Support
The board has processes in place to ensure that it receives
the right information in the right form at the right time to
enable it to effectively discharge its duties. The Chairman,
with the support of the executive directors and the Company
Secretary, ensures that this information is appropriate, clear,
comprehensive and accurate.
The directors have access to independent external professional
advice at the Company’s expense where they judge this
necessary to discharge their responsibilities as directors.
The Board is supported in its work by the following key
committees:
• Audit Committee
• Nominations Committee
• Remuneration Committee
The terms of reference of each of these Committees are
regularly reviewed and available on the Company’s website
at www.sdl.com. Further details of these Committees can be
found in their reports on pages 31–48.
The Company Secretary or her delegate acts as secretary to the
Committees. See below for the calendar for meetings of the
Board and its committees
Activities in 2014
2014
Jan
Feb
Mar
Apr
May
June
July
Aug
Sept
Oct
Nov
Dec
Board meetings
×
AGM
Strategy/Planning meetings
Audit Committee
Nomination Committee
Remuneration Committee
×
×
×
×
×
×
×
×
×
×
×
×
×
×
×
×
×
×
×
×
×
×
Strategic Report
28
2014 Dashboard
Structure
Annual Report 2014
SDL PLC
BOARD
Chairman: David Clayton
Audit Committee
Chairman: Mandy Gradden
see page 31
Nomination Committee
Chairman: Alan McWalter
see page 35
Remuneration Committee
Chairman: Glenn Collinson
see page 37
Board composition as at 31 December 2014
Date first elected
by shareholders
Years from first election
to the 2015 AGM
Considered to be
independent by the Board
Non-executive directors:
David Clayton
Chris Batterham
Glenn Collinson
Mandy Gradden
Alan McWalter
Executive directors:
Mark Lancaster
Dominic Lavelle
April 2010
April 2000
Standing for first election
in April 2015
April 2012
April 2014
April 2000
April 2014
5
15
0
3
1
15
1
Yes
Yes*
Yes
Yes
Yes
n/a
n/a
All Board committees are made up of independent non-executive directors.
*The Nomination committee noted that Chris Batterham has
served for 15 years as a non-executive director and under the
Code is no longer considered to be independent. The Board
has considered the matter carefully and believes that Chris
Batterham continues to demonstrate the qualities of inde-
pendence in carrying out his role, supporting the executive di-
rectors in an objective manner. He has a breadth of experience
and brings a degree of objectivity to the board’s deliberations,
playing a valuable role in monitoring executive management.
The Board also noted Chris Batterham’s resignation from all
Board Committees resulting in a fully independent Commit-
tee membership. The Nomination Committee will keep his
independence under review.
John Matthews who resigned from the Board as a non-executive
director in April 2012 continued to work with the Company
throughout 2014 as a consultant. John Matthews was a non-
executive Director from 2002 to 2012. He chaired the Audit and
Remuneration Committees and, at the time of his retirement
from the Board, was the Senior Independent Director. He had a
career specialising in Corporate Finance ahead of then moving
into senior roles in industry. In recent years he has held a
number of outside directorships as Chairman (Crest Nicholson,
Regus) or Senior Independent Director (Rotork, Diploma,
Minerva, Center Parcs). He is a qualified Chartered Accountant.
The Board values John Matthews’ financial expertise and
international experience.
The Nomination Committee keeps
the balance and
independence of the non-executive directors and its advisors
under review. Norman Broadbent worked with the Nomination
Committee in 2014, analysing the skills and succession needs
of the Board to identify two new non-executive directors who
have added strength to the Board and fit the culture. Alan
McWalter and Glenn Collinson joined SDL in March and June
2014 respectively (see biographies on page 25).
The Board, through the Nomination Committee, follows a
rigorous and transparent procedure to select and appoint new
Board directors. The processes are similar for the appointment
of executive and non-executive directors. The Nomination
Committee leads the process and makes recommendations to
the Board. Further information on the Nomination Committee
and its work is set out in the Nominations Committee section
of this report. Our non-executive directors are appointed for an
initial period of three years, subject to remaining independent
and their re-election by the shareholders annually at the
Company’s Annual General Meeting (“AGM”). The Board makes
a careful assessment of the time commitment required from
the Chairman and the non-executive directors to discharge
their roles properly. This is discussed with potential candidates
as part of the recruitment process and the time requirement is
included in their engagement letters.
The terms and conditions of appointment of our non-executive
directors are available for
inspection at the Company’s
registered office and at our AGM.
Governance
29
Board composition as at 31 December 2014
Executive directors
Non-executive chairman
Independent non-executive directors
Non-independent non-executive directors
29% 14%
14%
43%
Changes during 2014
March 2014
Alan McWalter joined SDL PLC as Senior Independent Director
working closely with the Chairman, acting as a sounding
board and providing support. This appointment continues the
Company’s process of developing best governance practice
allowing David Clayton to focus on his role as Chairman. Alan
McWalter is appointed Chairman of the Nomination Committee
and a member of the Audit and Remuneration Committees.
April 2014
Joe Campbell stepped down from the Board at the 2014 AGM.
June 2014
Glenn Collinson joined SDL PLC as Remuneration Committee
Chairman and is appointed a member of Audit and Nomination
Committees. Mark Lancaster retires from the Nomination
Committee following Glenn Collinson’s appointment as a third
Nomination Committee member.
Attendance at scheduled meetings of the Board and its Committees during 2014
Board
Audit Committee
Nomination
Committee
Remuneration
Committee
Current directors:
Chairman:
David Clayton
Executive directors:
Mark Lancaster
Dominic Lavelle
Non-executive directors:
Chris Batterham
Glenn Collinson
Mandy Gradden
In attendance:
Consultant: John Matthews
Directors who stepped down in 2014:
Joe Campbell
7/7
7/7
6/7**
7/7
3/3
7/7
7*
2/2
5/5
3*
4*
4*
4/4
5/5
1*
–
3/3
2/2
–
–
2/2
-
–
–
6***
2*
1*
5*
4/4
6/6
3*
2/2
*Attendance by invitation.
** Absence due to prior commitment and agreed with Chairman in advance.
*** David Clayton attended two meetings as a member of the Committee and 4 by invitation.
Governance
30
Board Performance
Director induction
New directors receive a personalised induction programme,
tailored to their experience, background and particular areas
of focus which is designed to develop their knowledge and
understanding of the Group’s business.
Professional development and training
The Nomination Committee reviews the directors’ skills and
experience against those needed by the Board to oversee
and support the Group’s current and future operations. These
reviews support the approach to succession planning as well as
the ongoing development of the Board’s knowledge and skills.
Keeping up to date with key business developments is
achieved by:
• Presentations from the executives. The divisional CEOs
delivered presentations on the technology and business
models of their sectors.
• Meetings with analysts and major shareholders at the
technology teach-ins.
•
Financial and regulatory updates.
• Directors have the opportunity to identify their own training
and development needs as part of the annual evaluation
process.
Professional Advice
independent professional
Directors are given access to
advice at the Company’s expense when the directors deem it
necessary in order for them to carry out their responsibilities.
The directors also have access to the advice and services of the
Company Secretary.
Evaluation of the Board, Board Committees and Directors
Following the Board review conducted by Lintstock Ltd in 2013,
SDL retained the services of Lintstock to undertake a follow up
evaluation of the performance of the Board in 2014.
The first stage of the review involved Lintstock engaging with
the Chairman and the Company Secretary to set the context
for the evaluation and to tailor the questionnaires used to
the specific circumstances of SDL. The process picked up on
themes identified in the 2013 exercise, and had a particular
focus on the Board’s role with respect to strategy.
In addition to the Board and its key Committees, the 2014
Review also included an ‘upward’ component where the
performance of the Board was considered from the perspective
of the Executive Management team, and included a case
study of the Board’s 2014 strategy day. The anonymity of all
respondents was ensured throughout the process in order to
promote the open and frank exchange of views.
Lintstock subsequently produced a report which addressed
the following areas:
•
•
The composition of the Board, including the ratio of Non-
Executive to Executive Directors, was considered. The Board
members’ views as to the key changes that should be made
to the Board’s profile over the next 3 - 5 years, in context of
the company’s strategic goals, were identified.
The management of time at the Board, including the annual
cycle of work and the Board’s agenda, was considered, as
was the balance between strategic and performance issues
on the agenda.
Annual Report 2014
•
•
•
•
•
•
•
The quality and timeliness of the documentation provided
in advance of meetings were reviewed, as were the
presentations made by management to the Board.
The involvement of the Board in determining SDL’s strategic
direction was assessed, and the performance of the Board
in testing and developing the strategy was considered.
The performance of the company in capturing strategic
opportunities was also addressed.
The delegation of power from the Board to executive
management was reviewed, and the analysis of the
performance of the business, and the understanding of
performance relative to competitors, were considered. The
views of the Board members as to the top strategic issues
facing SDL were identified.
The Board’s management of the main risks to the business
was reviewed, as was the Board’s risk appetite.
The structure of SDL at senior levels in support of the
strategy was considered, as was the succession planning
for Executive Directors and for management beneath the
Board, and the Board’s ability to evaluate top management.
The composition and performance of the Committees of
the Board were also considered in the review, as was the
performance of the Chairman.
The perspective of the Executive Management team on the
core topics above was then considered.
As a result of the exercise, amongst other things, the Board
agreed to review the financial information provided to the
Board, consider the Executive representation on the Board as
currently composed, and increase the focus on succession
planning processes for the Executive Directors and key
management positions beneath the Board.
Diversity
The search for Board candidates is conducted and appointments
made on merit against objective selection criteria having due
regard, amongst other things, to the benefits of diversity on the
Board, including gender.
Other relevant matters, such as independence and the ability to
fulfil required time commitments in the case of non-executive
directors, are taken into account. The Board will consider
suitably qualified candidates for non-executive director roles
from as wide a pool as appropriate, including candidates
with little or no previous listed company board experience
but whose skills and experience will add value to the Board.
The Board will brief executive search consultants engaged in
the selection process for non-executive directors to review
candidates from a variety of backgrounds and perspectives.
The Board will only engage executive search consultants who
have signed up to the voluntary code of conduct for executive
search firms on gender diversity on corporate boards.
Indemnification
The Company maintains liability insurance for its directors
and officers which is renewed annually. Deeds of indemnity
are also in force under which the Company has agreed to
indemnify the directors, to the extent permitted by law and the
Company’s articles of association, in respect of all losses arising
out of, or in connection with, the execution of their powers,
duties and responsibilities, as directors of the Company or any
of its subsidiaries.
Governance
31
Audit Committee
“The year under review has been a busy one with the Committee focused on satisfying
itself that internal controls are running effectively and working with the new KPMG group
audit partner on all areas of audit planning, including audit scope, to ensure the delivery
of a robust and value-adding audit.”
Mandy Gradden
Chairman, Independent non-executive director
Membership in 2014
Mandy Gradden – Chairman
David Clayton
Alan McWalter – appointed on
1 March 2014
Glenn Collinson – appointed on
1 June 2014
Membership in 2015
Mandy Gradden – Chairman
David Clayton
Alan McWalter
Glenn Collinson
Dear Shareholder,
As Chairman of the Audit Committee, I am pleased to present our report for 2014. The year has been a busy one with the Committee
focused on satisfying itself that internal controls are running effectively and working with the new KPMG group audit partner on all
areas of audit planning, including audit scope, to ensure the continued delivery of a robust and value-adding audit.
The Committee acts independently of management to ensure your interests are protected in relation to financial reporting, risk
management, internal control and related compliance activities. In addition to the Committee’s normal agenda, we specifically
reviewed the efficiency and effectiveness of the Group’s treasury and foreign exchange management, business continuity and
disaster recovery plans, and the Group’s legal and tax structure with the aim of making it more efficient.
Looking forward to 2015, we will continue to regularly assess our systems against the changing regulatory environment including
the impact of the new revenue recognition standard in 2017, and focus on mitigating controls over the Group’s principal risks.
Mandy Gradden
Audit Committee Chairman
Key Objectives:
To promote and maintain effective governance over:
•
•
•
the appropriateness of the Group’s financial reporting;
the performance of the external auditor; and
the management of the Group’s system of internal control
including internal audit activities, business risks and related
compliance activities.
Responsibilities
• Reviewing financial
results announcements, financial
statements and any other formal announcement relating
to financial performance;
• Reporting to the Board on the appropriateness of
accounting policies and significant judgements;
• Advising the Board on the clarity and completeness of
disclosure in the Group’s annual report and whether, taken as
a whole, it is fair, balanced and understandable and provides
the information necessary for shareholders to assess the
Group’s performance, business model and strategy;
• Assessing the adequacy and effectiveness of the Group’s
internal financial controls and risk management processes;
• Reviewing
internal audit reports and monitoring the
effectiveness of the group’s internal audit provision.
• Overseeing the relationship with the external auditor;
• Carrying out any in-depth reviews of specific areas of
financial reporting, risk and internal control, as necessary.
The Committee
The Audit Committee is made up entirely of independent non-
executive directors, listed below. Mandy Gradden has chaired
the Committee since July 2013. She is a Chartered Accountant
and holds the position of Chief Financial Officer of Top Right
Group and previously was CFO of private and publicly quoted
technology businesses. The Board considers that Mandy
Gradden has recent and relevant financial experience, as
required by the Code. All of the Committee members have
significant executive experience in various industries and full
biographical details are set out on pages 24 and 25. This range
and depth of financial and commercial experience enables
them to deal effectively with the matters they are required to
address and to challenge management when necessary. The
Company Secretary is secretary to the Committee.
Governance
32
Annual Report 2014
The Committee met five times during 2014. Dates and attendance were as follows:
4 Mar 2014
24 Jun 2014
30 Jul 2014
24 Oct 2014
25 Nov 2014
Mandy Gradden - Chairman
David Clayton
Glenn Collinson – appointed 1
June 2014
Alan McWalter – appointed 1
March 2014
✓
✓
n/a*
✓
✓
✓
✓
x**
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
*this meeting pre-dates Glenn Collinson’s appointment to the Company.
** Alan McWalter was unable to attend the meeting on 24 June 2014 due to a commitment arranged prior to his appointment to
the Company.
Since the end of the year, the Committee has met once (5
March 2015) and all members attended.
Only the members of the Committee have the right to attend
Committee meetings however, the Committee invites the
external auditor, KPMG Audit Plc (“KPMG”) to every meeting.
The Chief Financial Officer, the Chief Executive Officer, the
Group Finance Director and the Group Tax Manager also attend
meetings by invitation of the Committee. The Committee
considers that the presence of these executives does not
influence or restrict the Committee’s open deliberation of
matters or the Committee’s independence, and finds that
their presence has the advantage of enabling the Committee
to raise questions directly of them and, where necessary, to
challenge them about matters under review. If the presence of
any attendee is inappropriate or might compromise discussion,
then the Committee would either not invite the attendee
concerned or request that they not attend part of the meeting.
The Committee regularly meets with KPMG in the absence
of executive management. Outside of the formal meetings
described here, the Chairman meets regularly with KPMG, the
Chief Financial Officer and other executives.
The Committee undertakes its duties in accordance with its
terms of reference which are available on the Company’s
website. These were reviewed during the year to ensure that
they remained fit for purpose and in line with best practice
guidelines.
As part of the formal annual Board evaluation, the Committee’s
effectiveness was subject to review in 2014 facilitated by an
independent consultant. Details of the process can be found
on page 30. The Committee’s composition was reviewed to
ensure that there is sufficient expertise and resource to fulfil its
responsibilities effectively.
Committee Meetings in 2014 and 2015 to date
Date
4 March 2014
24 June 2014
Key Agenda Items
Approval of 2014 internal audit site visit program
Annual results
• Significant accounting issues
• External auditor’s report
• Review of preliminary results and draft announcement
Key Judgements
Draft Annual report
Review of accounting policies assumptions, judgements and estimates
Internal audit report
Scope of Interim Audit
Treasury/Foreign exchange review
Review of the Internal audit organisation
Review of corporate structure
Annual review of internal controls
30 July 2014
Interim results
24 October 2014
25 November 2014
• Significant accounting issues
• External auditor’s interim review report
• Review of interim preliminary results announcement
Key Judgements
External auditor Audit Strategy report
Group Tax matters review
Internal audit report
Business continuity and Disaster Recovery review
Evaluation of the Committee’s performance (for review by the Board in January 2015)
5 March 2015
Annual results
• Significant accounting issues
• External auditor’s report
• Review of preliminary results announcement
Key Judgements
Draft Annual report
Non Audit fees
Effectiveness of External audit
Governance
33
Committee Activities in 2014
future against which those tax losses may be recoverable.
During 2014, the Committee’s agenda included consideration
of the following topics:
Financial Results
An essential part of the Committee’s role is to review whether
the annual report and accounts, taken as a whole is fair,
balanced and understandable and provides the information
necessary for shareholders to assess the Group’s performance,
business model and strategy. A critical part of this assessment is
our review of matters that required the exercise of a significant
element of judgement. The significant judgements considered
by the Committee in relation to the 2014 accounts were:
Technology Revenue Recognition: The recognition of revenue
in the income statement, or conversely deferred revenue on
the balance sheet, on licenced software and related services
requires judgement which could materially affect the timing and
quantum of revenue and profit recognised in each accounting
period. These judgements become more critical in multi-element
contracts where license, maintenance, hosting and professional
services are bundled together. With the growth in the Group’s
software-as-a-service and other recurring technology revenues,
these judgements are becoming more material.
The Group has a detailed policy on revenue recognition for each
category of technology revenue including the allocation of
fair values between the different categories. Audit procedures
performed by KPMG and reported to the Committee included,
inspecting those contracts contributing the highest levels of
licence revenue and assessing revenue recognition against
the Group’s accounting policies. Where new revenue streams
emerge the Committee reviews revenue recognition policies
adopted by management. The Committee also considered
the findings of the external auditor. The policies and controls
adopted in 2014 are consistent with prior years and are
considered appropriate by the Committee. The Committee
is comfortable that management have been appropriately
judgement and
prudent where contract clauses require
concluded that the timing of recognition continues to be in
line with IFRS requirements.
Impairment of goodwill and intangibles: The carrying value
of goodwill and intangibles at £202.6 million exceeds the
£202.1 million net assets of the Group and is also significant
compared to the £350 million market capitalisation of the
Group. In the prior year, an impairment of £20.4 million was
recorded against goodwill. Due to the inherent uncertainty
involved in forecasting and discounting future cash flows, this
is one of the key judgemental areas. In 2014, it has not been
considered necessary to impair goodwill.
The key assumptions applied in calculating the value in use
include discount rates and future performance expectations of
the Technology business. The Committee received a detailed
report from management on both the assumptions underlying
the impairment review and the outcome of the review. The
Committee examined and challenged the key assumptions.
The Committee has also considered the disclosure surrounding
the review and concluded that it is appropriate.
The impairment review was also an area of focus for the
external auditor who reported their findings to the Committee.
Deferred taxation: The recognition of deferred tax assets
on tax losses is a key judgement, particularly given the
Group’s structure and extent of intercompany transactions
and associated transfer pricing. It requires the Group to be
sufficiently certain that taxable profits will be generated in the
The judgement is complicated further by detailed local
legislation.
The deferred tax credit of £3.1 million is a material component
of the Group’s overall tax charge of £2.8 million.
The Committee received regular reports and verbal updates
from management concerning tax risks, including deferred
taxation. The Committee
judgement of
management in assessing whether deferred tax assets will
be recoverable in future periods. The external auditor also
reported on their findings.
reviewed
the
Internal Audit
Internal audit activities are presently carried out by members
of the Group’s Head Office finance team or by peer reviews to
provide a level of independence. The Committee agrees both
the standard work programmes and the rota of site visits to be
undertaken and reviews reports of the site visits prepared by
the Group Finance Director.
At the June 2014 Committee meeting, the need for, and
potential scope of, a full-time, independent Internal Audit
department was reviewed. The Committee decided that
the current procedures and escalations on risk, control and
governance from the risk management framework together
with the external auditor, are sufficient assurance and no full-
time independent internal audit function is required at this
time. These arrangements will be kept under review.
Internal control, risk management and site visit
A review by the Audit Committee and the Board of the
effectiveness of the Group’s risk management and internal
control systems is undertaken annually. As part of its agenda,
the Committee allowed time for in-depth reviews of particular
areas. In 2014, for example, this included a review of the
corporate structure and a review of the Business Continuity
and Disaster Recovery plans. Key elements of the Group’s
internal financial control framework and procedures include:
Internal Audit programme: Five or six specific business units
are selected for audit of compliance risks and vulnerabilities in
consultation with the Audit Committee. Reports received from
this programme summarised the audits undertaken during the
year, the key findings of those audits, any recommendations to
address the findings and the progress made by the business
unit in implementing the recommendations of this and prior
visits. The Committee considered and approved the site visit
program for 2015.
Tax Risk reviews: The Committee received and considered
presentations from the Group Tax Manager on the group’s
principal tax risks and how these were managed. The
Committee approved the strategy and focused on potential
risks associated with the failure to deliver the tax strategy as
well as tax reporting and accounting.
Operational reviews: There are regular meetings of the
executive team with the executive directors to review
operational aspects of the business.
Financial reporting: There is a Group-wide system of financial
reporting, budgeting and cash forecasting through which financial
accounts are prepared and submitted to the Board monthly.
Financial data verification: There is regular preparation and,
when appropriate, update of profit and cash flow forecasts, to
monitor actual against expected performance.
Governance
34
Annual Report 2014
System reviews and transformation projects: There are regular
meetings of the Board at which progress and business risks are
reported upon and monitored.
External Audit
The Committee reviews the performance of the external
auditor taking into account their performance against the
agreed audit plan, input from management and responses to
questions from the Committee and audit findings reported
to the Committee. From these activities, the Committee has
concluded that the external audit process operated effectively
throughout 2014 and KPMG continue to prove effective in their
role as external auditor. In 2015, the Committee intends to use
a questionnaire completed by Committee members, executive
directors and key members of the Group’s finance personnel to
assist in the assessment of external audit effectiveness.
KPMG have been auditors to the Group since 2010. Following
the retirement of Paul Gresham who had been the KPMG audit
partner for four years, in 2014 Simon Haydn-Jones became the
lead KPMG audit engagement partner on SDL’s audit following
interviews with the Committee Chairman and the executive
directors, which focused on industry experience, particularly
regarding the Group’s most judgemental audit areas such as
technology revenue recognition. Audit scope and materiality
was reviewed and refined in 2014 to address the development
of the Group.
The Committee is satisfied with the auditor’s effectiveness and
independence and does not consider it necessary to undergo
a tender process at this time but is carefully monitoring how
best practice develops around EU audit reform and the UK
Competition and Markets Authority guidelines.
The Committee approves all non-audit work greater than
£20,000 commissioned from KPMG and takes into account
both cost effectiveness that often arises from the auditor’s
accumulated knowledge of the Group and practicality. In 2014,
the fees paid to the auditor were £354,000 (2013: £365,000)
for audit services and £351,000 (2013: £338,000) for non-audit
services.
The majority of the non-audit services provided by KPMG were
in respect of taxation advice including tax compliance and
preparation of tax returns (£231,000) and advice on overseas
tax loss availability (£40,000). The majority of the work in this
area will be completed in 2015. The Committee concluded
that it was in the interests of the Group to use KPMG for this
work because of their knowledge and experience of the Group
gained in the role of compliance advisors over several years
thereby making the work more efficient and better value. The
Audit Committee keeps under review the cost effectiveness,
independence and objectivity of the external auditor and has
adopted a formal written process in this regard. The auditor
also confirms that it has complied with relevant independence
standards. The Committee was also satisfied that no conflicts of
interest existed or would arise in the course of the work.
Our auditor, KPMG Audit Plc has instigated an orderly wind
down of business. The Board has decided to put KPMG LLP
forward to be appointed as auditor and a resolution concerning
their appointment will be put to the forthcoming AGM of the
company.
Strategic Report
35
Nomination Committee
“This has been an important year for our Nomination Committee. Amongst other matters
we recommended the appointment of two new non-executive directors and nominated
a new Senior Independent Director.”
Alan McWalter
Chairman
Membership in 2014
Mark Lancaster – resigned as Chairman
on 29 April 2014 and resigned from the
Committee on 30 July 2014
Alan McWalter appointed Chairman
on 29 April 2014
David Clayton
Joe Campbell resigned on 29 April 2014
Glenn Collinson appointed 30 July 2014
Membership in 2015
Alan McWalter (independent
non-executive director) – Chairman
David Clayton (Non-executive
director)
Glenn Collinson (independent
non-executive director)
Key Objectives:
•
Ensure the Board has an appropriate structure, size and
composition to discharge its responsibilities;
•
Identify and nominate candidates to fill board vacancies;
and
• Review the leadership needs of the organisation to ensure
the continued ability to compete in the marketplace.
Responsibilities
• Review structure, size and composition of the Board.
• Advise the Board and make recommendations to the Board
The Committee
The Committee consists of Alan McWalter (Chairman), David
Clayton and Glenn Collinson, all non-executive directors of the
Company. Alan McWalter has chaired the Committee since 29
April 2014, replacing Mark Lancaster.
Only members of the Committee have the right to attend
meetings, however the CEO as well as external advisors may
attend all or part of any meeting by invitation as and when
appropriate.
The Company Secretary is secretary to the Committee.
on the appointment and removal of Board members.
Meetings and Activities in 2014
• Reviews Board succession planning and leadership needs.
• Reviews current structure of the Board and its committees
the
including diversity and balance of skills and
independence of non-executive directors.
• Oversees performance evaluation of the Board,
its
committees and individual directors.
• Consider any conflicts of interest reported by directors of
the Group.
•
Terms of reference available on the website: www.sdl.com.
The Committee meets on an ad-hoc basis usually immediately
prior to or following a board meeting, and on other occasions
as may be needed.
The Committee met three times during the year ended 31
December 2014 and the Chairman of the Committee keeps
members up to date by means of email or telephone between
meetings. The dates of the meetings and attendance at those
meetings were as follows:
Mark Lancaster
Alan McWalter
David Clayton
Joe Campbell
Glenn Collinson
29 April 2014
30 July 2014
13 October 2014
✓ (resigned as Chairman)
✓ (resigned from Committee)
✓ (appointed Chairman)
✓
✓ (resigned from Committee)
n/a*
✓
✓
n/a**
✓
n/a
✓
✓
n/a**
✓
*this meeting pre-dates Glenn Collinson’s appointment to the Company.
** these meetings were post Joe Campbell’s resignation from the Company.
Since the end of the year the Committee has met once on 5 March 2015. All members attended.
Strategic Report
36
Annual Report 2014
Activities during 2014:
Appointment of non-executive directors - in the first quarter of
2014 the Committee oversaw the appointment of two new non-
executive directors to the Company: Alan McWalter (appointed
to the Board on 1 March 2014) and Glenn Collinson (appointed
to the Board on 1 June 2014). The Committee considers a
number of factors when making new appointments, including
what the new director will add to the balance of skills and
experience and whether the director will be able to commit
sufficient time to discharge their responsibilities. An external
executive search company, Norman Broadbent, was tasked
with conducting a search against an agreed specification
and to shortlist candidates with suitable skills and experience.
Recommendations were made to the Board that the new
non-executives be appointed and the Board accepted the
recommendation.
Non-executive director succession – succession to the roles
of Senior Independent Director, Chairman of the Nomination
Committee and Chairman of the Remuneration Committee
were considered. Alan McWalter was appointed Senior
Independent Director on 1 March 2014 and appointed
Chairman of the Nomination Committee on 29 April 2014.
Glenn Collinson was appointed Chairman of the Remuneration
Committee on 1 June 2014.
Review of re-election of the directors at the AGM – it was noted
that Chris Batterham has served for more than fifteen years
as a non-executive director and under the Code is no longer
considered to be independent. The Committee has considered
the matter carefully and believes that Chris Batterham
continues to demonstrate the qualities of independence
in carrying out his role, supporting the executive directors
in an objective manner. His length of service and resulting
experience and knowledge of the Company is of great benefit.
The Committee also noted that Chris Batterham does not serve
on any Board Committees. The Nomination Committee will
keep his independence under review.
Review of performance and effectiveness – as part of the
Board evaluation for 2014 (see page 30 for more details)
views were sought from all Committee and Board members.
Matters covered included time management, processes and
support and priorities for the coming year. The responses were
distributed to the Committee in November and discussed in
more detail at the Board meeting in March 2015. The current
composition of the Nomination Committee was rated highly,
furthermore it was suggested that the key changes made
during 2014 have proved valuable. Suggestions made as to
how best the Committee could improve its performance
over the coming year included having oversight of formal
succession plans for key managers.
Diversity
The search for board candidates is conducted, and appointments
made, on merit against objective selection criteria having due
regard, amongst other things, to the benefits of diversity on
the board, including gender. The Committee and the Board
acknowledge that diversity extends beyond the boardroom
and supports management in their efforts to build a diverse
organisation. It endorses the Company’s policy to attract and
develop a highly qualified and diverse workforce and to ensure
that all selection decisions are based on merit and that all
recruitment activities are fair and non-discriminatory. To this
end, the Board will maintain its practice of embracing diversity
in all its forms but has chosen not to set any measurable
objectives.
On behalf of the Nomination Committee
Alan McWalter
Chairman of the Nomination Committee
Governance
37
Remuneration Committee
Directors’ Remuneration Report
“…the Committee considers this to be a balanced policy, aligning reward and
incentives with strategy and with the long term interests of shareholders.”
Glenn Collinson
Chairman, Independent non-executive director
Membership in 2014
Membership in 2015
Glenn Collinson – Chairman
Mandy Gradden
Alan McWalter
Joe Campbell – Chairman
resigned at the AGM in 2014
Glenn Collinson – incoming
Chairman
David Clayton – resigned from
the Committee on 1 June 2014
Mandy Gradden
Alan McWalter
Key Objectives:
• Determine the Group’s policy on remuneration and monitor
its implementation.
• Approve the design and performance criteria of share-
based-plans.
• Approve the remuneration package for each executive
director.
Responsibilities
•
The Committee’s full terms of reference are set out on the
Group’s website www.sdl.com.
The Committee
The Committee is comprised entirely of independent non-
(Chairman), Mandy
executive directors: Glenn Collinson
Gradden and Alan McWalter. Joe Campbell was Chairman of the
Committee until the AGM in 2014, when he resigned from the
Committee and from the Board. David Clayton resigned from
the Committee on 24 June 2014 on the appointment of Glenn
Collinson and in recognition of the best practice of Chairmen
of Boards not serving on their Remuneration Committee.
The Board determines the remuneration of the non-executive
directors and also has responsibility for electing persons to
the Board. The Remuneration Committee does not have the
authority to employ or dismiss directors.
The Committee’s effectiveness is reviewed on an annual basis
as part of the Board evaluation process.
Meetings and Activities in 2014
• Review of the executive directors’ annual bonuses and
vesting of share plans.
• Benchmarking exercise on executive director and senior
management remuneration packages.
•
Established the executive directors’ bonus for 2014 and a
bonus structure for senior management.
• Reviewed the vesting criteria for share-based awards made
in 2011.
• Approved share-based awards for 2014.
•
Investor engagement: met with shareholders and reviewed
feedback on executive remuneration.
• Reviewed revised remuneration reporting regulations and
prepared the Directors’ remuneration report.
External advisors
The Remuneration Committee obtains advice from various
independent sources as appropriate. The Committee’s advisors
in 2014 were:
• CJW Remuneration Consultants for advice on the use of
share incentives within the Group; plan design; market
practice; and governance.
• PricewaterhouseCoopers LLP (PWC) as independent
assessors for testing the vesting criteria (Total Shareholder
Return (“TSR”) and EPS) of share-based incentives.
•
Towers Watson for market data and benchmarking
executive rewards; advice on market practice; and reward
consultancy.
• Mercer for Market data and benchmarking executive
rewards.
The Committee Chairman has direct access to the advisors as and
when required. The advice is used by the Committee as a guide,
providing an alternative view, and not a substitute for thorough
consideration of the issues by each Committee member.
Governance
38
Annual Report 2014
Directors’ Remuneration Report
Letter from the Remuneration
Committee Chairman
This report covers the activities of the Remuneration Committee for the year ended 31 December 2014 and sets out
the remuneration policy and remuneration details for the executive and non-executive directors of the Company. Below
is a Letter from the Remuneration Committee Chairman followed by the Remuneration Policy and the Annual Report
on Remuneration. The Annual Report on Remuneration provides details on remuneration in the period will be subject
to an advisory shareholder vote at the Annual General Meeting (AGM). The Policy Report which sets out the directors’
remuneration policy was subject to a binding shareholder vote at the AGM held in April 2014. This policy will apply until
the AGM in 2017, unless revised by a vote of shareholders ahead of that time. It is not proposed to amend the directors’
remuneration policy at the Annual General Meeting in 2015. The Companies Act 2006 requires the auditor to report to
the shareholders on certain parts of the report and to state whether, in their opinion, those parts of the report have been
properly prepared in accordance with the Regulations. The parts that are subject to audit are indicated therein. The Letter
from the Remuneration Committee Chairman and the Policy Report are not subject to audit.
In 2015 the Committee will be reviewing the effectiveness
of the current LTIP in attracting, retaining and motivating our
employee population. As part of this review, the Company will
assess whether this population could be better incentivised by
rewarding for performance against a different balance of financial
and share price metrics, because an over dependence on share
price metrics alone can be remote for many staff. Any changes to
the LTIP for sub-Board employees may justify some changes to
the LTIP structure for the executive directors too. We expect that
the review will be concluded during 2015, at which point we will
consult with shareholders on any substantive changes and seek
shareholder approval, as appropriate.
The Annual Report on Remuneration will be put to an advisory
shareholder vote at the 2015 AGM.
I look forward to receiving your support for the resolutions at our
forthcoming AGM.
Glenn Collinson
Remuneration Committee Chairman
Dear Shareholders
On behalf of the Board I am pleased to present the Directors’
remuneration report for the year ended 31 December 2014 for
which we will be seeking your approval at the 2015 AGM. This
report has been prepared by the Remuneration Committee and
approved by the Board.
It is divided into two sections:
•
•
The Policy Report which sets out our forward-looking
remuneration policy. The Remuneration Policy
is
unchanged on that which was approved at the 2014 AGM.
The Annual Report on Remuneration, which sets out how
our directors were paid in the year ending 31 December
2014 in accordance with the current policy.
Our objective is that the directors’ remuneration policy should be
stable, easy to understand and reward the right behaviours.
The Committee is mindful of the need to demonstrate the link
between remuneration and performance of the Company and is
satisfied that the incentive outcomes in 2014 prove this to be the
case. The Long Term Incentive Plan (LTIP) awards and Share Options
granted in 2011 were subject to a relative Total Shareholder Return
(TSR) performance; the Company’s TSR over this period was below
threshold and as a result the 2011 LTIP and Share Options did not
vest. Whereas this demonstrates that the journey to execute the
long range plan is still work in progress, the improvement in the
financial performance in 2014 versus 2013 was marked, justifying
the increase in the annual cash bonus for the CEO to 136% of base
salary . This resulted in the overall total figure for remuneration
for the CEO increasing substantially, when compared to 2013
during which performance was very disappointing, to £1.28
million, although this is still below the on-target figure for total
remuneration of just over £1.5 million shown in the Illustration
of the 2014 Policy in last year’s Annual Report. The Committee
considers that these incentive outcomes are appropriate given the
performance of the Company during 2014. There were no base
salary increases for the Executive Directors in 2014.
Governance
39
Policy Report – Directors’
Remuneration
Policy overview
The Remuneration Committee (the Committee) regularly
reviews the Policy to ensure it supports shareholder interests
and closely reflects business strategy.
In determining the Policy, the Committee takes into account
the following:
•
•
•
the need to attract, retain and motivate talented Executive
Directors and senior management;
the need to provide annual
incentives that reward
achievement of short-term objectives key to delivering the
long-term strategy;
consistency with the remuneration approach applied to
employees throughout the Group; and
•
external comparisons to examine current market trends and
practices and equivalent roles in similar companies taking
into account their size, business complexity, international
scope and relative performance.
Shareholder views
the Company’s
The Committee
Remuneration Policy with shareholder guidelines, and takes
account of the results of shareholder votes on remuneration.
compares
regularly
If any material changes to the Remuneration Policy are
contemplated, the Chairman of the Board and other non-
Executive Directors consult with major shareholders about
these in advance.
Details of votes cast for and against the resolution to approve
last year’s Remuneration report are provided on page 48.
Remuneration policy
The table below sets out the remuneration policy that was
effective from the 2014 AGM and summarises the key aspects
of the Company’s Remuneration Policy for Executive Directors,
subject to shareholder approval at that AGM. It explains how
each element of Executive Directors’ remuneration package
operates.
Total remuneration packages for Executive Directors are made
up of salary, pension, benefits, annual bonus and long term
incentive plan awards. This policy remains unchanged from the
year ended 31 December 2014. Changes to the previous policy
are marked in blue.
Purpose
Operation
Maximum opportunity
Performance
Executive Directors
Salary
To attract and retain
the best talent.
Base salaries are normally reviewed
annually with reference to market
data (on which the Committee
receives independent advice from
Towers Watson and Mercer).
Increases are made only
exceptionally to reflect market
movements and changes in job
responsibilities.
Salaries are reviewed against
level of skill, experience and
scope of responsibilities
of the individual and
business performance,
economic climate and
market conditions; and
peer group of comparably
sized companies and other
software businesses.
Taxable
benefits
To aid retention and
remain competitive
within the market
place.
Car Allowance
Private medical insurance
Life assurance
Health insurance
Other benefits may be offered
if considered appropriate and
reasonable by the Committee.
These are set at a level which
the Remuneration Committee
considers appropriate when
compared with comparable
roles in companies of a similar
size and complexity.
See pages 44 and 45 for details
of payments in 2014.
Pension
To aid retention and
provide competitive
retirement benefits.
Participation in defined contribution
pension arrangements. Executive
Directors may choose to participate
or receive a cash allowance in lieu
of pension.
The company makes
contributions to the personal
pensions of the CEO and CFO
equivalent to 12% of salary.
n/a
n/a
Annual bonus
Motivate
and reward
achievement of
challenging annual
targets that support
the company’s
short and mid-term
strategy.
Measures and targets are set
annually and payout levels are
determined by the Remuneration
Committee after the year end
based on performance against
those targets. The Remuneration
Committee may, in exceptional
circumstances, amend the bonus
payout should this not, in the
view of the Committee, reflect
overall business performance or
individual contribution.
The bonus is delivered in cash.
See below for further details.
Value of annual bonus is
limited to a percentage of
salary.
For maximum performance:
150% of salary.
For acceptable performance:
between 50% and 100% of
salary.
The performance objectives
are Group profit and revenue
targets with an overall
multiplier for sales bookings
growth. Further details of
each Executive Director’s
2014 objectives are provided
in the implementation of
directors’ remuneration
section.
The measures that will apply
for the financial year 2015 are
given in the following report.
Governance
Purpose
Operation
Maximum opportunity
Performance
Annual Report 2014
40
Long-term
incentive plan
To motivate and
incentivise delivery
of sustained
performance linked
to the Company’s
strategy; aligning
Executive Directors’
interests with those
of shareholders.
Sharesave
A scheme offering
employees in
specific territories
the opportunity to
build a shareholding
in the Company.
Retention**
arrangement
To allow the
Company to
retain high calibre
executives.
Maximum award of 150% of
salary.
The Committee retains the
discretion to make awards up
to the individual limit under
the plan and would expect
to consult with significant
investors if awards were to be
made routinely above current
levels.
2011 Plan – approved by
shareholders at the AGM on
20 April 2011.
Performance period is 3
years.
TSR - must at least match
that of the FTSE 250 index
over the performance period.
EPS - must increase by
at least inflation + 3%
per annum during the
performance period by
reference to the Consumer
Prices Index.
Maximum Save As You Earn
saving of £500 per month or
foreign currency equivalent.
None
Dependent on circumstances.
n/a
Awards of share-based incentives
are made annually, vesting over
3 years. Vesting is subject to
comparative Total Shareholder
Return (“TSR”) and Earnings
Per Share (“EPS”) targets. The
Remuneration Committee has
discretion to decide whether and
to what extent targets have been
met, and if an exceptional event
occurs that causes the Committee
to consider that the targets are no
longer appropriate, the Committee
may adjust them.
Executive Directors participate on
the same basis as all employees.
Monthly savings are made over
a three year period linked to
the grant of an option over SDL
shares. Options under the plan are
granted at up to a 20% discount to
market value.
The Committee may make one-
off awards to Executive Directors
in exceptional circumstances, but
only when in the best interests
of the Company/shareholders.
Any awards would be subject
to continued employment/
performance conditions, as
appropriate. Shareholders will
be consulted before any such
award wherever practicable.
Shareholders will be informed at
the time of any such award.
Chairman &
Non-executive
Director fees
To provide an
appropriate reward
to attract and
retain high-calibre
individuals. Non-
executive Directors
do not participate
in any incentive
scheme.
Fees are reviewed periodically.
The Chairman is paid a single
consolidated fee. The Non-
executive Directors are paid a
basic fee plus additional fees
for chairmanship of a Board
Committee or taking on the role
of Senior Independent Director.
Fees are paid in cash.
Fees are disclosed in the
Directors’ remuneration report.
None
**the Remuneration Committee would like to clarify that any arrangement specifically established to retain an individual would have
performance criteria in line with those contained in the LTIP plans and the value be capped at 150% of base salary. To alleviate any concerns
around the scope of this discretion, the Committee confirms that this mechanism would only be used in very narrow circumstances - that is,
in exceptional circumstances. The Committee considers that these circumstances would arise highly infrequently, if at all, in the lifetime of the
policy. The Committee would regard reliance on this discretion as a matter of utmost seriousness and, in relation to the stated obligation to
consult in advance with major shareholders, would not proceed unless there was clear consensus in favour among those consulted.
Strategic Report
41
Notes to the remuneration policy table
Annual Bonus: The measures used under the annual bonus schemes
are selected annually to reflect the Group’s main strategic objectives
for the year. The 2014 bonus plan was based upon the achievement
of Group revenue and profit before amortisation and taxation (PBTA)
with an overall multiplier based on the growth in licence sales
bookings (“bookings”), measured against the budget approved by the
Board for the year.
Revenue and profit targets are given equal weightings and operate
independently. For a minimum payout, bookings must have
increased, compared with 2013 bookings, by five per cent. There is
no bonus payment if bookings growth is below five per cent. The
bookings multiplier is linear; zero below five per cent and scaling up
to one and a half at fifteen per cent. There is no individual revenue or
profit performance cap in the cash bonus calculation but the overall
cash bonus payable to executive directors is capped at 150% of base.
For details of 2014 payments see pages 44/45.
For 2015 the annual bonus is based on key performance indicators
(KPIs) linked to the Group’s strategy, which provides a rounded
assessment of the Group’s performance.
The two financial metrics will be operating margin and revenue.
Directors will be eligible to an additional over-performance payout if
the Group over-achieves on its target bookings – bookings multiplier.
The levels of bonus award will therefore reflect actual performance
relative to both annual and longer-term expectations.
Annual bonus performance measures are selected to provide
an appropriate balance between incentivising directors to meet
profitability and other financial targets for the year and achieve
strategic operational objectives. The Remuneration Committee may, in
exceptional circumstances, amend the bonus payout should this not,
in the view of the Committee, reflect overall business performance or
individual contribution.
Long-Term Incentive plan: The current SDL Long Term Share
Incentive Plan was approved by shareholders at an Extraordinary
General Meeting of the Company in April 2011 (“the 2011 plan”).
It reflects current law and market practice and the performance
conditions are based on TSR and EPS as in the view of the Committee
these remain the key drivers of the business.
The 2011 Plan, which was designed following consultations with the
main institutional shareholder committees (and which is the only long
term discretionary executive share plan available to the executive
directors) complies with the overall dilution limits relating to the
number of new shares (including the re-issue of treasury shares) that
can be made available to employee share schemes as published by
the The Investment Association (“TIA”).
As an alternative to dilution, awards may be satisfied by the transfer of
shares purchased in the market via the Company’s existing Employee
Benefit Trust should that route be considered to be in the best
interests of the Company.
The Committee, having carefully considered current market practice,
restricts individual limits to 150% of basic salary per annum. This is the
maximum annual limit and the actual level of awards is considered
each year by the Committee before they are made. The vesting of
awards is subject to TSR and EPS performance conditions being
achieved over a minimum period of three years.
Claw back/Malus
There are no specific provisions to withhold or recover sums paid
under short and long term incentives.
Retention Arrangement
No additional, special retention arrangements were made to the
executive directors during the last year.
Service contracts and loss of office payment policy: Service
contracts normally continue until the director’s agreed retirement
date or such other date as the parties agree. The service contracts
contain provision for early termination. No director has a notice
period exceeding 12 months. Service agreements contain no
contractual entitlement to receive variable pay; participation in these
arrangements is at the Committee’s discretion. If the employing
company terminates the employment of an executive director
without giving the period of notice required under the contract, the
executive director would be entitled to claim recompense for up to
one year’s remuneration subject to consideration of the director’s
obligation to mitigate the loss. Such recompense is expected to
be limited to: base salary due for any unexpired notice period; any
amount assessed by the Committee as representing the value of other
contractual benefits, and pension, which would have been received
during the period. In the event of a change of control of the Company
there is no enhancement to these terms.
Any outstanding share-based entitlements granted to an executive
director under the Company’s share plans will be determined
based on the relevant plan rules. The default treatment is that any
outstanding awards lapse on cessation of employment. However, in
certain prescribed circumstances, such as death, disability, retirement
or other circumstances at the discretion of the Committee (taking
into account the individual’s performance and the reasons for their
departure) ‘good leaver’ status can be applied.
An Executive Director’s service contract may be terminated without
notice and without any further payment or compensation, except
for sums accrued up to the date of termination, on the occurrence of
certain events such as gross misconduct.
Approach to remuneration for new executive director
appointments: The remuneration package for an externally recruited
new executive director would be set in accordance with the terms
and maximum levels of the Company’s approved remuneration policy
in force at the time of appointment.
In addition, the Committee may offer additional cash and/or
sharebased elements when it considers these to be in the best
interests of the Company (and therefore shareholders). In considering
any such payments the Committee would take account of
remuneration relinquished when leaving the former employer and
the nature, vesting dates and any performance requirements attached
to the relinquished remuneration. Shareholders will be informed of
any such payments at the time of appointment.
For an internal appointment, any variable pay element awarded in
respect of the prior role may be allowed to pay out according to its
terms, adjusted as relevant to take into account the appointment.
In addition, any other ongoing remuneration obligations existing
prior to appointment may continue, provided that they are put to
shareholders for approval at the earliest opportunity.
For external and internal appointments, the Company may meet
certain relocation expenses as appropriate.
Legacy arrangements: For the avoidance of doubt, this Policy report
includes authority for the Company to honour any commitments
entered into with current or former directors that have been disclosed
to shareholders in previous Remuneration reports. Details of any
payments to former directors will be set out in the implementation
section of this report as they arise.
External Non-executive Director positions: Executive directors are
permitted to serve as Non-executive Directors of other companies
where there is no competition with the Company’s business activities
and where these duties do not interfere with the individual’s ability to
perform his duties for the Company. Neither of the Executive Directors
currently has such appointments.
If the appointment is not connected to the Company’s business, the
Executive Director is entitled to retain any fees received.
Strategic Report
Annual Report 2014
42
Discretion
The Committee reserves certain discretions in relation to the
outcomes for Executive Directors under the Company’s incentive
plans.
These operate in two main respects:
•
•
enabling the Committee to ensure that outcomes under these
plans are consistent with the underlying performance of the
business and the expectations of shareholders; and
enabling the Committee to treat leavers in a way that is fair and
equitable to individuals and shareholders under the incentive
plans.
The Committee will also use its judgement as to what is appropriate
within the terms of the Directors’ Remuneration Policy to make
decisions that do not involve the exercise of discretion.
Policy on non-executive directors
The remuneration of the non-executive directors is periodically
reviewed by the Chairman following consultation with the Board. Our
policy is to pay competitively considering external market research
and individual roles and responsibilities. Current non-executive
director fees are included in the table on pages 44 and 45.
• Non-executive directors do not participate in any incentive
or benefit plans. The Company does not provide any pension
contributions.
• Non-executive directors have letters of appointment setting
out their duties and time commitment expected. The letters
are available for inspection by shareholders at the Company’s
registered office upon request.
•
The appointment of non-executive directors may be terminated
without compensation.
• Non-executive directors are generally not expected to serve for a
period exceeding nine years
•
•
The Chairman meets with each non-executive director to review
individual performance.
In line with the UK Corporate Governance Code, all non-executive
directors submit themselves for re-election every year at the
Annual General Meeting.
Strategic Report
43
Illustration of 2015 remuneration policy
The charts below provide an estimate of the potential future
reward opportunities for the Executive Directors and the split
between the different elements of remuneration under three
different performance scenarios: ‘Below target’, ‘On-target’ and
‘Exceptional’.
Potential reward opportunities are based on SDL remuneration
policy, applied to base salaries as at 1 January 2015. Note that
the projected values exclude the impact of any share price
movements. For this reason, were the LTIPs to vest in full, actual
total remuneration may exceed the value shown in the chart
below.
Three scenarios have been illustrated for each executive
director:
Below target performance – No bonus payout – No LTIP
vesting
Target performance – between 50% and 100% of salary
payout in annual bonus – LTIP equivalent to 100% of salary
vesting
Exceptional performance - 150% of salary payout in annual
bonus – LTIP equivalent to 150% of salary vesting
The scenarios below do not take into account share price
appreciation or dividends. For the purpose of the illustrations
the value of each component has been rounded to the nearest
£1,000.
Below target
performance:
Below target
On target
On target
performance:
Exceptional
Exceptional
performance:
0
84%
31%
23%
no bonus payout
11%
no vesting of the LTIP award in 2015
5%
2%
4%
between 50% to 100% of salary paid out as
31%
31%
annual bonus
100% vesting of LTIPs
3%
2%
36%
36%
150% of salary paid out as annual bonus
100% vesting of LTIPs
500
2000
1500
1000
2500
CEO Illustration
Salary
Benefits
Pension
5%
11%
Bonus
LTIP
Below target
84%
On target
31%
31%
31%
Exceptional
23%
36%
2%
4%
3%
2%
36%
0
500
1000
1500
2000
2500
Pension
Bonus
LTIP
CFO Illustration
Salary
Below target
86%
Benefits
3%
11%
On target
37% 20% 37%
1%
5%
1%
3%
Exceptional
24%
36%
36%
0
500
1000
1500
2000
2500
Salary
Benefits
Pension
Bonus
LTIP
Below target
86%
On target
37% 20% 37%
3%
11%
1%
5%
1%
3%
Exceptional
24%
36%
36%
0
500
1000
1500
2000
2500
Salary
Benefits
Pension
Bonus
LTIP
Strategic Report
2014
2013
2014
2013
2014
2013
682,500
154,791
–
–
–
–
–
–
–
–
837,291
–
–
–
–
–
–
–
–
–
–
–
682,500
–
–
242,574
257,727
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
113,624
113,624
payment (£)
352,266
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
2014
70,000
1,281,095
480,855
40,000
24,000
26,250
45,000
37,500
30,000
2013
57,500
596,593
29,949
40,000
46,130
35,000
–
–
34,500
319,160
2,034,700
1,158,832
Long Term
incentive (£)
–
–
–
618,887
325,090
TOTAL (£)
1,281,095
596,593
728,807
1,200,492
953,651
44
Annual Report 2014
Annual Report on Remuneration 2014
Application of Policy
Information subject to audit
The following table sets out a single figure for the total
remuneration received by each director during 2014 versus
2013.
Basic salary and fees (£)
Taxable benefits (£)
Pension (£)
Bonus (£)
Contractual loss of office payment (£)
Long Term incentive (£)
TOTAL (£)
David Clayton
Mark Lancaster
Dominic Lavelle
Chris Batterham
Joe Campbell
Glenn Collinson
Mandy Gradden
Alan McWalter
John Matthews
Matthew Knight
2014
70,000
500,000
280,000
40,000
24,000
26,250
45,000
37,500
30,000
–
1,052,750
CEO remuneration 2009-2013
2013
57,500
500,000
28,718
40,000
46,130
–
35,000
–
34,500
169,583
911,431
2014
–
38,595
12,464
–
–
–
–
–
–
–
51,059
2013
–
32,557
1,231
–
–
–
–
–
–
15,603
49,391
2014
–
60,000
33,600
–
–
–
–
–
–
–
93,600
2013
–
64,036
–
–
–
–
–
–
–
20,350
84,386
Basic salary and fees (£)
Taxable benefits (£)
Pension (£)
Bonus (£)
Contractual loss of office
2014 Mark Lancaster
2013 Mark Lancaster
2012* Mark Lancaster/John Hunter
2011
John Hunter
2010 Mark Lancaster
500,000
500,000
308,398
291,667
300,000
38,595
32,557
19,030
12,364
30,798
*CEO role split: John Hunter - January-October 2012; Mark Lancaster - November-December 2012
60,000
64,036
49,113
35,000
40,036
Notes to the single figure total
remuneration table:
Basic Salary
The base salaries of executive directors are reviewed annually
having regard to personal performance, divisional or Group
performance, significant changes
in responsibilities and
competitive market practice in their area of operation. The
principal external comparator groups against which executive
directors’ reward is currently reviewed include the FTSE 250 and
similarly sized UK-headquartered companies. Changes to base
salary are generally effective from 1 January.
Salaries in 2013: David Clayton’s fee increased to £70,000 on the
assumption of the duties of Chairman in July 2013. Dominic
Lavelle joined as CFO in November 2013 on a basic salary of
£280,000.
Salaries in 2014:
Mandy Gradden’s fee increased to £45,000 to reflect her role
as Chairman of the Audit Committee and member of the
Remuneration Committee.
There was no increase in salary in 2014 for the executive
directors.
Benefits
The benefits in 2014 were unchanged from the previous year
and included: car allowance, private medical insurance and life
assurance.
Bonus
No bonus was paid in 2013 to the executive directors. In 2014
the annual bonus paid to the executives was £682,500 and
£154,791 for Mark Lancaster, CEO and Dominic Lavelle, CFO,
respectively.
Long Term incentive
This includes long-term incentives where the performance
conditions have been achieved in the year, regardless of service
conditions.
The LTIP awards granted in 2011 failed to vest in 2014. For
minimum vesting, the TSR of the Company had to at least
match that of the FTSE 250 (excluding investment trust
companies) Index. PriceWaterhouseCoopers measured the
Company’s TSR performance against the Index and it has not
matched the Index’s performance. All 2011 LTIP awards, due for
release in 2014, lapsed.
Loss of office payments
No loss of office payments were made to past directors during
the year. No payments have been made that have not already
been included in the single figure of remuneration set out
earlier in this report.
The Company’s termination policy is shaped by the key principles
that:
• Contractual terms will be adhered to, and
•
The circumstances of the termination will be taken into
account.
Pension
The company made contributions in 2014 to the personal
pensions of the CEO and CFO equivalent to 12% of basic salary.
Executive Directors’ service contracts continue until the agreed
retirement date or other date as the Company may agree and
carry up to one year’s notice maximum.
David Clayton
Mark Lancaster
Dominic Lavelle
Chris Batterham
Joe Campbell
Glenn Collinson
Mandy Gradden
Alan McWalter
John Matthews
Matthew Knight
2014
70,000
500,000
280,000
40,000
24,000
26,250
45,000
37,500
30,000
–
CEO remuneration 2009-2013
2013
57,500
500,000
28,718
40,000
46,130
35,000
–
–
34,500
169,583
911,431
–
–
–
–
–
–
–
–
2014
2013
2014
2013
38,595
12,464
32,557
1,231
60,000
33,600
64,036
–
–
–
–
–
–
–
15,603
49,391
38,595
32,557
19,030
12,364
30,798
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
20,350
84,386
60,000
64,036
49,113
35,000
40,036
2012* Mark Lancaster/John Hunter
2014 Mark Lancaster
2013 Mark Lancaster
2011
John Hunter
2010 Mark Lancaster
500,000
500,000
308,398
291,667
300,000
*CEO role split: John Hunter - January-October 2012; Mark Lancaster - November-December 2012
Basic salary and fees (£)
Taxable benefits (£)
Pension (£)
Governance
45
Basic salary and fees (£)
Taxable benefits (£)
Pension (£)
Bonus (£)
Contractual loss of office payment (£)
Long Term incentive (£)
TOTAL (£)
1,052,750
51,059
93,600
837,291
2014
–
682,500
154,791
–
–
–
–
–
–
–
2013
2014
2013
2014
2013
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
113,624
113,624
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
2014
70,000
1,281,095
480,855
40,000
24,000
26,250
45,000
37,500
30,000
2013
57,500
596,593
29,949
40,000
46,130
–
35,000
–
34,500
319,160
2,034,700
1,158,832
Bonus (£)
682,500
–
–
242,574
257,727
Contractual loss of office
payment (£)
Long Term
incentive (£)
–
–
352,266
–
–
–
–
–
618,887
325,090
TOTAL (£)
1,281,095
596,593
728,807
1,200,492
953,651
The Company may terminate an Executive Director’s service
contract by way of payment in lieu of notice, by continuing
employment for the duration of the notice period and/or
by assigning a period of garden leave. The current Executive
Directors’ service contracts also contain a non-compete
provision of one year from the date of termination of the
agreement.
Remuneration of Chief Executive Officer and how the
Remuneration Policy relates to the wider Company
Remuneration arrangements are determined throughout the
Group based on the same principles that:
•
•
reward should be sufficient to attract and retain high calibre
talent;
reward should support the delivery of business strategy.
Local management within SDL’s devolved structure are
empowered to create remuneration packages on an individual
business-by-business basis. All employees are entitled to base
salary and benefits and may also receive bonus, pension and
share awards which vary according to local business and
market practice. Therefore, when considering remuneration
arrangements for Executive Directors, the Committee takes
into account as a matter of course the pay and conditions
of colleagues throughout the Company. In particular, the
Committee receives regular updates of any major changes
and supports the promotion of employment conditions
that are commensurate with a good employer, including
high standards of health and safety and policies on equal
opportunity. Senior managers expected to have the greatest
influence on company performance over time are eligible for
participation in long-term incentive plans and employees with
at least one year’s service in the SDL countries (where available
and feasible) have the opportunity to become shareholders in
the company through our all-employee share plan.
Governance
46
Annual Report 2014
Historical executive pay and Company performance
Information not subject to audit
R
S
T
L
D
S
y
a
p
O
E
C
SDL Total Shareholder
Return as at 31 Dec
Single figure
remuneration of CEO
2010
2011
2012
2013
2014
Single figure remuneration of
CEO
SDL Total Shareholder Return as
at 31 Dec
2010
£1.0m
2011
£1.2m
2012
£0.7m
2013
£0.6m
2014
£1.3m
283.84
292.76
227.58
162.53
187.49
Relative importance of spend on pay
Information not subject to audit
TSR
Information not subject to audit
Profit Before Tax & Amortisation and one-off items:
2013: £8.2 million
2014: £16.5 million
Returns to shareholders:
2013: nil
2014: ordinary dividends of £2.0 million (2.5 pence per share)
Total employee pay:
2013: £145.7 million
2014: £141.3 million
The graph below shows SDL’s TSR against the performance of
relevant indices over the same period. The indices shown in
the graph were chosen as being broad market indices which
include companies of a comparable size and complexity to SDL
PLC
450
400
350
300
250
200
150
100
50
0
01/01/2009
01/01/2010
01/01/2011
01/01/2012
01/01/2013
01/01/2014
01/01/2015
SDL – TOT RETURN IND
FTSE ALL SHARES S/W &
COMP SVS £ – TOT
RETURN IND
FTSE TECHMARK FOCUS
(£) – TOT RETURN
Rebased FTSE250
Rebased FTSE250 ex
INVESTMENT TRUST
Governance
47
Directors’ shareholdings and share interests
Information subject to audit
The directors and their interests in the share capital of the Group as at 31 December 2014 according to the register of directors’
interests are detailed as follows:
Shareholdings (including connected persons)
At
1 Jan 2014
Purchased
during year
Purchase
price (p)
Sold
during year
At
31 Dec 2014
David Clayton
Chris Batterham
Joe Campbell
Glenn Collinson
Mandy Gradden
Mark Lancaster
Dominic Lavelle
Alan McWalter
*John Matthews
*advisor to the Board
40,000
86,895
–
–
7,500
–
–
–
–
1,201,994
179,193
–
–
8,329@329.25p;
24,500@349.8p;
10,050 @ 389p;
71,875 @ 305p;
64,439 @ 327p
–
–
27,000
30,000
30,000 @ 340p
–
10,000
331.34p
–
–
–
–
–
–
–
40,000
86,895
–
–
7,500
1,381,187
30,000
–
37,000
There have been no further changes to any directors’ interests in shares (including options and long term incentive plan shares)
since the end of the financial year up to a date that is not more than one month before the date of the notice of general meeting.
LTIPS
Mark Lancaster
Mark Lancaster
Mark Lancaster
Mark Lancaster
Dominic Lavelle
Issue price
At 1 Jan 2014
Awarded
during the year
Exercised
during the year
Achieved
during the year
670(a)
748(b)
420(c)
333.5(d)
333.5(d)
67,164
60,160
178,571
–
–
–
–
–
224,887
83,958
–
–
–
–
–
–
–
–
–
–
Expired
unachieved
during the year
67,164
–
–
–
–
At
31 Dec 2014
0
60,160
178,571
224,887
83,958
(a) awarded 18 May 2011, expire 18 May 2021
(b) awarded 10 April 2012, expire 10 April 2022
(c) awarded 17 April 2013, expire 17 April 2023
(d) awarded 7 April 2014, expire 7 April 2024
In 2014 a total of 1,149,547 LTIP shares were awarded to executive directors and senior managers with a performance period of three
years from date of grant.
Of this total Mark Lancaster and Dominic Lavelle were awarded 224,887 and 83,958 respectively.
Conditional Award
Issue price
At 1 Jan 2014
Awarded during
the year
Exercised
during the year
Expired
unachieved
during the year
At
31 Dec 2014
Mark Lancaster
636p
141,510
–
141,510
–
–
Exceptional and one-off conditional award to Mark Lancaster on 17 January 2011 vesting over three years.
Vested in full as at 17 January 2014 and exercised in May 2014.
Mark Lancaster retained 64,439 shares, selling sufficient to fund the exercise costs and related income tax liabilities.
Options
Exercise price
(p)
At 1 Jan 2014
Awarded
during the year
Exercised
during the year
Expired
unachieved
during the year
At
31 Dec 2014
Mark Lancaster
119.33p
200,000
–
200,000
–
–
Governance
48
Annual Report 2014
Mark Lancaster exercised his options in May 2014 and retained 71,875, selling sufficient shares to fund the exercise costs and related
income tax liabilities.
Sharesave
Employees in Canada, Netherlands, the UK and the USA including executive directors, are eligible to participate in the Company’s
UK or International Sharesave Plan.
Indemnity
The company has granted an indemnity to one or more of its directors and subsidiary company directors against liability in respect
of proceedings brought by third parties, subject to the conditions set out in the Companies Act 2006. Such qualifying third party
indemnity provision remains in force as at the date of approving the directors’ report.
Consultations with shareholders and AGM voting
At the Annual General Meeting held on 29 April 2014, all resolutions were passed on a show of hands. Proxy votes lodged in respect
of directors’ remuneration were as follows:
Resolution
Votes for
% for
Votes Against
% against
Discretion Total Votes cast
Votes Witheld
Approve
remuneration policy
Adopt remuneration
report
62,922,657
97.99
1,282,928
63,547,893
98.97
657,692
2.00
1.02
490
64,206,075
490
64,206,075
2,942
2,942
Annual meetings take place between the Chairman of the Committee and the Chairman of the Group and major shareholders and
their representative bodies. The views expressed in these meetings help the Committee in determining how to implement the
Company’s remuneration policy.
Governance
49
Directors’ Report
Introduction
The Directors of SDL PLC present their report together with the
audited consolidated financial statements for the year ended
31 December 2014.
Other information which forms part of the directors’ report can
be found below and in the following sections:
• Board of Directors
• Corporate Governance
Financial Statements
•
The Board are required to present a fair review of the business
during the year and of the position of the Group at the end of
the financial year along with a description of the principal risks
and uncertainties faced.
The purpose of the Strategic Report is to give shareholders the
ability to assess how the directors have performed their duties
under section 172 of the Companies Act 2006 (to promote the
success of the Company). It provides context to the financial
statements, an analysis of past performance and an insight into
the main objectives, strategies and risks and how these might
impact future performance.
The Company
SDL PLC is the ultimate parent company of the SDL Group
which operates internationally. SDL PLC is registered in England
and Wales with the registered number 2675207. The principal
activities of the Group and its subsidiaries are described in the
Strategic report on pages 3-22.
Directors
Biographies
Biographies of the current Directors of the Company are given
on pages 24-25. The table on page 29 shows Directors who
served during the year to 31 December 2014.
Powers
The powers of the Directors are set out in the Company’s
Articles of Association, plus those granted by special resolution
at the AGM dated 29 April 2014 governing shares issuance.
Interests in contracts
As at the date of this report, there is no contract or arrangement
with the Company or any of its subsidiaries that is significant in
relation to the business of the Group as a whole in which a
Director of the Company is materially interested.
Indemnification
The Company has entered into deeds on indemnity with each
of its current directors to the extent permitted by law and the
Company’s articles of association, in respect of all losses arising
out of, or in connection with, the execution of their powers,
duties and responsibilities, as directors of the Company or
any of its subsidiaries. These indemnities are Qualifying Third-
Party indemnity provisions as defined in section 234 of the
Companies Act 2006 and copies are available for inspection at
the registered office of the Company during business hours.
Remuneration
Particulars of directors’ remuneration are shown in the directors’
remuneration report. Details of service contracts and how
a change of control will affect the service contracts of the
executive directors are also summarised within the directors’
remuneration report. Executive directors’ contracts do not
provide for extended notice periods or compensation in the
event of termination or a change of control.
Annual General Meeting
Our 2015 AGM will be held at 9:30am on Monday 27th April
2015 at Globe House, Clivemont Road, Maidenhead, Berkshire
SL6 7DY. The notice of the 2015 AGM will be made available to
shareholders and will also be published on the Group website
www.sdl.com /About / Investor Relations / AGM.
The Directors consider that all the AGM resolutions are in
the best interests of the Company and they recommend
unanimously that all shareholders vote in favour, as they intend
to do in respect of their own shareholdings.
Results and Dividends
The Group’s Consolidated Income Statement appears on page
56 and note 3 shows the contribution to revenue and profits
made by the different segments of the Group’s business. The
Group’s profit (PBTA and one-off costs) for the year was £16.5
million (2013: £8.2 million). The Directors are recommending
that shareholders declare a final dividend of 2.5 pence per
ordinary share in respect of the year ended 31 December 2014.
If approved, the final dividend will be paid on 5 June 2015 to
shareholders on the Register of Members at close of business
on 1 May 2015.
Going Concern
In line with UK Corporate Governance Code requirements the
Directors have made enquiries concerning the potential of the
business to continue as a going concern. Enquiries included
a review of performance in 2014, 2015 annual plans, a review
of working capital including the liquidity position, financial
covenant compliance and a review of current cash levels.
As at 31 December 2014, the Company had drawn £9 million
of its £30 million facility with Royal Bank of Scotland. £6m
has been repaid in early 2015 and current forecasts show no
funding requirement beyond September 2015.
As a result, they have a reasonable expectation that the Group
has adequate resources to continue in operational existence
for the foreseeable future. Given this expectation they have
continued to adopt the going concern basis in preparing the
financial statements.
Governance
50
Annual Report 2014
Employee Share Schemes & The SDL Employee Benefit
Trust (the Trust)
The Company operates a number of employee share schemes.
Under one of those schemes, ordinary shares may be held by
trustees on behalf of employees. Employees are not entitled to
exercise directly any voting or other control rights in respect
of any shares held by such trustees. The trustees may not vote
any shares in which they hold the beneficial interest. However,
where the trustees are holding shares in a nominee capacity,
the trustees must act on any voting instructions received from
the underlying beneficial owner of such shares.
Details of issues and purchases of the Company’s shares made
in the year to 31 December 2014 by the Trust are to be found
in note 19 to the accounts. Since 31 December 2014 no further
shares have been purchased by the Trust to satisfy employee
awards under The SDL Retention Share Plan.
All employees who meet the necessary service criteria in
Canada, the Netherlands, the UK and the USA including
executive directors, may participate in the Company’s UK or
International Sharesave plan.
Employees also hold outstanding share options under
discretionary schemes, see note 19 to the accounts.
All of the Company’s share plans contain provisions relating to
a change of control. Outstanding awards and options would
normally vest and become exercisable on a change of control,
subject to the satisfaction of any performance conditions at
that time.
Share Capital and Control
As at 10 March 2015 the Company’s issued share capital
comprised a single class of ordinary shares. Details of the
structure of the Company’s capital and the rights and
obligations attached to those shares are given in note 18 to
the accounts.
Each share carries the right to one vote at general meetings
of the Company and ordinary rights to dividends. The rights
and obligations attached to the shares are more fully set out
in the Articles of Association of the Company. There are no
restrictions on the transfer of securities of the Company other
than the following:
• Certain restrictions may, from time to time, be imposed by
laws and regulations (such as insider trading laws).
• Pursuant to the Listing Rules of the Financial Conduct
Authority, the Company requires certain employees to
seek the Company’s permission to deal in the Company’s
ordinary shares.
The Company is not aware of any agreements between
shareholders that may result in restrictions on the transfer of
shares and/or voting rights. There are no shareholdings which
carry special rights relating to control of the Company. There
are no significant agreements entered into by the Company
that take effect, alter or terminate upon a change of control
following a takeover bid and the effect of such agreements.
The agreements between the company and its directors
for compensation for loss of office are given in the Directors
Remuneration Report on page 37.
Employment policy
Information regarding our employees and their involvement
within the business, including the Company’s policy towards
discrimination and diversity can be found on page 16. Our
employment policies are developed to reflect local legal,
cultural and employment requirements.
Health & Safety
The Chief Financial Officer has ultimate responsibility for Health
and Safety. Specific tasks are delegated to local office managers
and suitably trained individuals within the organisation.
The Group recognises and accepts its responsibility as an
employer to provide safe and healthy working conditions for
all its employees. The Company commits to maintaining a safe
working office environment complying with relevant local
legislation and providing training where appropriate in matters
of health and safety.
SDL’s policy on Health & Safety includes the following:
•
•
•
•
•
To provide information, training and supervision as is
necessary to ensure health and safety at work;
To provide and maintain safe equipment;
To comply with statutory requirements for health, safety
and welfare in each global office;
To maintain safe and healthy working conditions; and
To review and revise this policy as necessary at regular
intervals.
Substantial shareholdings
All persons with a significant holding, along with the value of that holding are given in the table below (share price at 18 February
2015; 458 pence).
Holding at
17 February 2015
% of issued
share capital
Value of Holding
(£’000)
Toscafund Asset Management
Schroder Investment Management
Fidelity Worldwide Investment
Artemis Investment Management
RGM Capital
Baillie Gifford
Herald Investment Managers
Aberforth Partners
9,920,947
8,305,750
8,068,809
7,624,910
5,511,579
3,652,481
3,351,269
2,455,683
12.25
10.25
9.96
9.41
6.80
4.51
4.14
3.03
£45,438
£38,040
£36,955
£34,922
£25,243
£16,728
£15,349
£11,247
Governance
51
Greenhouse gas emissions
All disclosures concerning the Group’s greenhouse gas
emissions (as required to be disclosed under the Companies
Act 2006 (Strategic Report and Directors’ Report) Regulations
2013) are contained in the Environment section of the Strategic
report on page 21.
Auditor
Our auditor, KPMG Audit Plc has instigated an orderly wind
down of business. The Board has decided to put KPMG LLP
forward to be appointed as auditor and a resolution concerning
their appointment will be put to the forthcoming AGM of the
company.
Disclosure of relevant audit information
So far as the directors who are in office at the time of the
approval of this report are aware there is no relevant audit
information (namely, information needed by the Company’s
auditors in connection with the preparation of their auditors’
report) of which the auditor is unaware. Each director has taken
all the steps a director might reasonably be expected to have
taken to be aware of relevant audit information and to establish
that the company’s auditor is aware of that information.
Corporate Governance Compliance
Statement
The Board considers that SDL PLC complied with all provisions
of the Code throughout the year to 31 December 2014 and the
Governance report together with the Directors’ Remuneration
report explains how.
COMPANY NUMBER
The Company number of SDL PLC is 2675207.
By order of the Board
Dominic Lavelle
Director
10 March 2015
Contractual Relationships
There are no individual contracts which are considered to be
significant or critical to the overall business of the Group.
Creditor Payment Policy and Practice
It is the Group’s policy that payments to suppliers are made in
accordance with those terms and conditions agreed between
the Group and its suppliers, provided that all trading terms and
conditions have been complied with and that there are no
disputes. This policy was applied consistently in 2014 and the
ethical treatment of suppliers is of importance to the supply
relationships with the extensive list of individual freelance
translators that form an integral part of the translation supply
chain and on whom SDL relies. Any changes in supplier terms
and conditions are through negotiation.
At 31 December 2014, the Company had an average of 37 days
purchases outstanding in trade creditors (2013: 29 days).
Political and Charitable Donations
During the current and prior year no political donations were
made. Charitable donations amounting to £3,838 were made
to external charities and £163,720 was donated to The SDL
Foundation.
Internal controls
There has been a process for identifying, evaluating and
managing significant risks throughout the year to 31 December
2014 and up to the date of the approval of the financial
statements for that year. In respect of our financial reporting
process and the process for preparing our consolidated
accounts, management monitors the processes underpinning
the Group’s financial reporting systems through regular
reporting and review. Data for consolidation into the Group’s
financial statements are reviewed by management to ensure
that they reflect a true and fair view of the Group’s results in
compliance with applicable accounting policies. Further
information is included within the Corporate Governance
section of the Annual Report.
Governance
52
Annual Report 2014
Statement of Directors’ Responsibilities
in Respect of the Annual Report and
the Financial Statements
The directors are responsible for preparing the Annual Report
and the group and parent company financial statements in
accordance with applicable law and regulations.
Responsibility statement of the directors in
respect of the annual report
We confirm that to the best of our knowledge:
•
•
the financial statements, prepared in accordance with the
applicable set of accounting standards, give a true and fair
view of the assets, liabilities, financial position and profit or
loss of the company and the undertakings included in the
consolidation taken as a whole; and
the strategic report
fair review of the
includes a
development and performance of the business and the
position of the issuer and the undertakings included in the
consolidation taken as a whole, together with a description
of the principal risks and uncertainties that they face.
We consider the annual report and accounts, taken as a
whole, is fair, balanced and understandable and provides the
information necessary for shareholders to assess the group’s
position and performance, business model and strategy.
Dominic Lavelle
Director
10 March 2015
Company law requires the directors to prepare group and
parent company financial statements for each financial
year. Under that law they are required to prepare the group
financial statements in accordance with IFRSs as adopted by
the EU and applicable law and have elected to prepare the
parent company financial statements in accordance with UK
Accounting Standards.
Under company law the directors must not approve the
financial statements unless they are satisfied that they give a
true and fair view of the state of affairs of the group and parent
company and of their profit or loss for that period. In preparing
each of the group and parent company financial statements,
the directors are required to:
•
select suitable accounting policies and then apply them
consistently;
• make judgements and estimates that are reasonable and
prudent;
•
•
for the group financial statements, state whether they have
been prepared in accordance with IFRSs as adopted by the
EU;
for the parent company financial statements, state whether
applicable UK Accounting Standards have been followed,
subject to any material departures disclosed and explained
in the parent company financial statements; and
• prepare the financial statements on the going concern
basis unless it is inappropriate to presume that the group
and the parent company will continue in business.
The directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the parent
company’s transactions and disclose with reasonable accuracy
at any time the financial position of the parent company and
enable them to ensure that its financial statements comply with
the Companies Act 2006. They have general responsibility for
taking such steps as are reasonably open to them to safeguard
the assets of the group and to prevent and detect fraud and
other irregularities.
Under applicable law and regulations, the directors are also
responsible for preparing a Strategic Report, Directors’ Report,
Directors’ Remuneration Report and Corporate Governance
Statement that complies with that law and those regulations.
The directors are responsible for the maintenance and integrity
of the corporate and financial information included on the
company’s website. Legislation in the UK governing the
preparation and dissemination of financial statements may
differ from legislation in other jurisdictions.
Financial Statements
53
Independent Auditor’s report
to the members of SDL plc only
Opinions and conclusions arising from our audit
1. Our opinion on the financial statements
is unmodified
We have audited the financial statements of SDL plc for the
year ended 31 December 2014 set out on pages 56 to 97. In
our opinion:
•
•
•
•
the financial statements give a true and fair view of the state
of the Group’s and of the parent company’s affairs as at 31
December 2014 and of the Group’s profit for the year then
ended;
the Group financial statements have been properly
prepared
International Financial
Reporting Standards as adopted by the European Union;
in accordance with
the parent company financial statements have been
properly prepared in accordance with UK Accounting
Standards; and
the financial statements have been prepared in accordance
with the requirements of the Companies Act 2006 and, as
regards the Group financial statements, Article 4 of the IAS
Regulation.
2. Our assessment of risks of material
misstatement
In arriving at our audit opinion above on the financial
statements the risks of material misstatement that had the
greatest effect on our audit were as follows:
Technology revenue (£113.6 million)
Refer to page 33 (Audit Committee statement), page 65
(accounting policy) and pages 66 to 67 (financial disclosures).
•
The risk – Technology revenue includes licenced software
and related services. Where software is sold as a perpetual
licence, revenue is typically recognised on delivery. Support
and maintenance and other services generally form part
of the contract and the revenue is recognised as the
services are performed. In these cases Technology revenue
recognition is considered a significant audit risk as there
is often significant judgement required in allocating the
consideration receivable to each element of the contract
which requires estimation of the fair value of the delivered
and undelivered elements of the contract. This judgement
could materially affect the timing and quantum of revenue
and profit recognised in each period.
• Our response – In this area our audit procedures included,
among others, inspecting those licenced software and
related service contracts contributing the highest levels of
revenue, and critically assessing:
¶
the appropriateness of the directors’ judgements in
determining the fair value of each element of the
contract by reference to standalone selling prices,
day rates for consultancy and training, support and
maintenance rates and renewal rates;
¶
the elements of the contract that have been delivered
by obtaining proof of delivery for delivered elements;
¶
¶
the significance of undelivered elements, such as
professional services outstanding or upgrades or
future changes to products, to determine the potential
impact on revenue recognition;
the appropriateness and consistent application of the
Group’s accounting policies across each contract tested.
We checked cash receipts against contract revenue recognised
to determine whether any late payment indicated whether
the allocation and recognition of revenue was incorrect.
Where amounts remain unpaid, we evaluated the directors’
judgements on recoverability, taking into account specific
customer circumstances, externally available data on trade
credit exposures and our own knowledge of recent bad debt
experience in the industry.
We also assessed the adequacy of the Group’s disclosure about
significant judgements in relation to revenue recognition.
Impairment of goodwill and intangibles (£202.6 million
carrying value)
Refer to page 33 (Audit Committee statement), page 65
(accounting policy) and page 76 (financial disclosures).
•
impairment of goodwill and
The risk – The carrying value of goodwill and intangibles is
a significant part of the net assets of the group. Following
the recent deterioration in the trading performance of the
Technology business in 2013 and whilst the subsequent
recovery in the business is ongoing there remains a risk
of
intangibles. Goodwill
and intangibles are assessed for impairment using a
discounted cash flow model to calculate a value in use.
Due to the inherent uncertainty involved in forecasting and
discounting future cash flows, particularly in determining
revenue growth rates, this is one of the key judgemental
areas that our audit concentrates on.
• Our response – In this area our audit procedures included,
among others, testing the budgeting process upon
which the forecasts are based and testing the principles
and integrity of the group’s discounted cash flow model.
We compared the input assumptions to externally and
internally derived data as well as our own assessments
in relation to key inputs such as projected economic
growth, cost inflation and discount rates. In particular, we
challenged the growth assumptions applied to revenue
over the next five years of the cash flow model. In addition,
we performed break-even analysis on the assumptions and
considered the likelihood of the assumptions reaching these
breakeven points. Our assessment included consideration
of the potential risk of management bias and consideration
of the historical accuracy of the directors’ forecasts. We also
compared the sum of the discounted cash flows to the
group’s market capitalisation by challenging whether the
group’s assumptions are appropriate in the light of any
different assumptions used by investors.
We also assessed the adequacy of the Group’s disclosures in
respect of impairment testing and whether the disclosures
Financial Statements
54
Annual Report 2014
about the sensitivity of the outcome of the impairment
assessment to changes in key assumptions properly reflect the
risks inherent in the key assumptions and the requirements of
relevant accounting standards.
Recognition of deferred tax assets on tax losses carried
forward at 31 December 2014 (£3.9 million)
Refer to page 33 (Audit Committee statement), page 66
(accounting policy) and pages 69 to 71 (financial disclosures).
•
The risk - The recognition of deferred tax assets on losses
requires the Group to be sufficiently certain that forecast
taxable profits will be generated against which those losses
may be recoverable. This is considered to be a significant
audit risk as there are complexities and judgements required
in forecasting taxable profits in each tax jurisdiction.
The judgement is complicated further by detailed local
legislation, particularly in the US, where the utilisation of
brought forward tax losses in previously acquired entities
may be restricted.
• Our response - In this area our audit procedures included,
among others, challenging the Group’s forecasts of future
taxable profits and checking the consistency of the
underlying assumptions used with those used in the cash
flow forecasts used for impairment testing (see above) and
the Group’s assessment of going concern.
We used reports prepared independently for the Group by
external tax experts to assist us in assessing the availability
of losses in jurisdictions (most notably the US) where there
are potential restrictions. We performed an assessment of
the independence and competence of the external experts
engaged by the Group to produce the reports. We utilised
our own tax specialists to challenge the key judgements
made by management around the specific tax legislation
in significant locations.
We also assessed the adequacy of the Group’s disclosure
about significant judgements in relation to recognition of
deferred tax.
3. Our application of materiality and an
overview of the scope of our audit
The materiality for the Group financial statements as a whole
was set at £750,000, determined with reference to a benchmark
of Group profit before taxation and one-off items, averaged
over the last three years in order to take into account volatility
in profits over this period, of £12.3 million, of which materiality
represents 6.1%.
We report to the Audit Committee all corrected and
uncorrected
identified misstatements exceeding £40,000,
in addition to other identified misstatements that warrant
reporting on qualitative grounds.
Of the Group’s 88 reporting components, we subjected 9 to
audits for group reporting purposes and 7 to specified risk-
focused audit procedures. The latter were not individually
significant enough to require an audit for Group reporting
purposes, but did present specific individual risks that needed
to be addressed.
The components within the scope of our work accounted for
the following percentages of the group’s results:
Number of
Components
Group
Revenue
Group Profit
before Tax (1)
Group Total
Assets
9
7
60%
19%
53%
14%
82%
8%
16
79%
67%
90%
Full-scope
Audit
Specified
Risk-
focused
procedures
Total
(1) % of the total profits and losses that made up group profit before tax
The remaining 21% of total group revenue, 33% of group profit
before tax and 9% of total group assets is represented by 72
reporting components, none of which individually represented
more than 4% of total group revenue, group profit before tax
or total group assets.
For the remaining components, we performed analysis at an
aggregated group level to re-examine our assessment that there
were no significant risks of material misstatement within these.
The Group audit team instructed component auditors as to
the significant areas to be covered, including the relevant risks
detailed above and the information to be reported back. The
Group audit team approved the component materiality, which
ranged from £100,000 to £600,000, having regard to the mix
of size and risk profile of the Group across the components.
The work on 12 of the 16 components was performed by
component auditors and the rest by the Group audit team.
The Group audit team visited seven components in the UK
and the USA. Telephone conference meetings were also held
with these component auditors and all others that were not
physically visited. At these visits and meetings, the findings
reported to the Group audit team were discussed in more
detail, and any further work required by the Group audit team
was then performed by the component auditor.
4. Our opinion on other matters
prescribed by the Companies Act 2006
is unmodified
In our opinion:
•
•
the part of the Directors’ Remuneration report to be
audited has been properly prepared in accordance with the
Companies Act 2006; and
the information given in the Strategic Report and the
Directors’ report for the financial year for which the financial
statements are prepared is consistent with the financial
statements.
5. We have nothing to report in respect of
the matters on which we are required
to report by exception
Under ISAs (UK and Ireland) we are required to report to you
if, based on the knowledge we acquired during our audit, we
have identified other information in the annual report that
contains a material inconsistency with either that knowledge
or the financial statements, a material misstatement of fact, or
that is otherwise misleading.
Financial Statements
55
In particular, we are required to report to you if:
• we have identified material inconsistencies between the
knowledge we acquired during our audit and the directors’
statement that they consider that the annual report and
financial statements taken as a whole is fair, balanced and
understandable and provides the information necessary for
shareholders to assess the Group’s performance, business
model and strategy; or
•
the section of the annual report describing the work of the
Audit Committee on pages 31 to 34 does not appropriately
address matters communicated by us to the Audit
Committee.
Under the Companies Act 2006 we are required to report to
you if, in our opinion:
•
•
•
adequate accounting records have not been kept by the
parent company, or returns adequate for our audit have not
been received from branches not visited by us; or
the parent company financial statements and the part of
the Directors’ Remuneration report to be audited are not
in agreement with the accounting records and returns; or
certain disclosures of directors’ remuneration specified by
law are not made; or
• we have not received all the information and explanations
we require for our audit.
Under the Listing Rules we are required to review:
•
•
the directors’ statement, set out on page 49, in relation to
going concern; and
the part of the Corporate Governance Statement on page
23 relating to the company’s compliance with the ten
provisions of the 2012 UK Corporate Governance Code
specified for our review.
We have nothing to report
responsibilities.
in respect of the above
Scope of report and responsibilities
As explained more fully in the Directors’ Responsibilities
Statement set out on page 52, the directors are responsible
for the preparation of the financial statements and for being
satisfied that they give a true and fair view. A description of
the scope of an audit of financial statements is provided on
the Financial Reporting Council’s website at www.frc.org.uk/
auditscopeukprivate . This report is made solely to the company’s
members as a body and is subject to important explanations
and disclaimers regarding our responsibilities, published on
our website at www.kpmg.com/uk/auditscopeukco2014a,
which are incorporated into this report as if set out in full and
should be read to provide an understanding of the purpose of
this report, the work we have undertaken and the basis of our
opinions.
Simon Haydn-Jones (Senior Statutory Auditor)
for and on behalf of KPMG Audit Plc, Statutory Auditor
Chartered Accountants
15 Canada Square
London
E14 5GL
10 March 2015
Financial Statements
56
Annual Report 2014
Consolidated Income Statement
for the year ended 31 December 2014
Sale of goods
Rendering of services
Revenue
Cost of sales
Gross profit
Administrative expenses
Operating profit/(loss)
Operating profit before tax, amortisation and one-off costs
Amortisation of intangible assets
One-off costs
Operating profit/(loss)
Finance income
Finance costs
Profit/(loss) before tax
Profit before tax, amortisation and one-off costs
Amortisation of intangible assets
One-off costs
Profit/(loss) before tax
Tax expense
Profit/(loss) for the year attributable to equity holders
of the parent
Earnings per ordinary share – basic (pence)
Earnings per ordinary share – diluted (pence)
Adjusted earnings per ordinary share (basic and diluted) are shown in note 7.
Notes
3
4
4
4
4
4
4
4
5
7
7
2014
£m
50.6
209.8
2013
£m
49.6
216.5
260.4
266.1
(112.9)
(120.1)
147.5
146.0
(137.8)
(170.0)
9.7
(24.0)
16.8
(7.1)
–
9.7
8.6
(7.5)
(25.1)
(24.0)
0.1
0.1
(0.4)
(0.5)
9.4
(24.4)
16.5
(7.1)
–
9.4
8.2
(7.5)
(25.1)
(24.4)
(2.8)
(3.5)
6.6
(27.9)
8.03
7.97
-34.78
-34.78
Financial Statements
57
Consolidated Statement
of Comprehensive Income
for the year ended 31 December 2014
Notes
2014
£m
2013
£m
Profit/(loss) for the period
6.6
(27.9)
Currency translation differences on foreign operations
Currency translation differences on foreign currency quasi equity loans to foreign subsidiaries
(5.3)
4.1
Income tax charge on currency translation differences on foreign currency
quasi equity loans to foreign subsidiaries
5
(1.1)
(0.1)
(0.3)
(0.1)
Other comprehensive income
Total comprehensive income
(2.3)
(0.5)
4.3
(28.4)
All the total comprehensive income is attributable to equity holders of the parent Company. A currency translation difference on a
foreign operation may be reclassified to the Income Statement upon disposal of that operation. There are no other items included
in Other Comprehensive Income that may be reclassified to the Income Statement in the future.
Financial Statements
58
Annual Report 2014
Consolidated Statement
of Financial Position
at 31 December 2014
Assets
Non current assets
Property, plant and equipment
Intangible assets
Deferred tax asset
Rent deposits
Current assets
Trade and other receivables
Cash and cash equivalents
Total assets
Current liabilities
Trade and other payables
Loans and overdraft
Current tax liabilities
Provisions
Non current liabilities
Other payables
Deferred tax liability
Provisions
Total liabilities
Net assets
Equity
Share capital
Share premium account
Retained earnings
Foreign exchange differences
Total equity
Approved by the Board of directors on 10 March 2015
M Lancaster
Director
D Lavelle
Director
Notes
8
9
5
12
13
14
16
17
15
5
17
18
2014
£m
7.4
202.6
5.3
1.7
217.0
71.7
22.1
93.8
2013
£m
9.6
209.0
3.7
1.6
223.9
70.9
18.2
89.1
310.8
313.0
(84.0)
(9.0)
(6.7)
(2.8)
(79.9)
(20.0)
(4.8)
(2.3)
(102.5)
(107.0)
(1.3)
(4.4)
(0.5)
(6.2)
(2.6)
(6.0)
(0.9)
(9.5)
(108.7)
(116.5)
202.1
196.5
0.8
97.9
90.9
12.5
0.8
97.4
83.5
14.8
202.1
196.5
Financial Statements
59
Consolidated Statement
of Changes in Equity
for the year ended 31 December 2014
At 1 January 2013
Loss for the period
Other comprehensive income
Total comprehensive income
Deferred income taxation on share based
payments* (Note 5)
Arising on share issues*
Dividend paid*
Share based payments*
At 31 December 2013
At 1 January 2014
Profit for the period
Other comprehensive income
Total comprehensive income
Arising on share issues*
Share based payments*
At 31 December 2014
Share
Capital
£m
0.8
–
–
–
–
–
–
–
0.8
Share
Capital
£m
0.8
–
–
–
–
–
0.8
Share
Premium
Account
£m
96.8
–
–
–
–
0.6
–
–
97.4
Share
Premium
Account
£m
97.4
–
–
–
0.5
–
97.9
Retained
Earnings
£m
114.9
(27.9)
–
(27.9)
0.2
–
(4.9)
1.2
83.5
Retained
Earnings
£m
83.5
6.6
–
6.6
–
0.8
90.9
Foreign
Exchange
Differences
£m
15.3
–
(0.5)
(0.5)
–
–
–
–
14.8
Foreign
Exchange
Differences
£m
14.8
–
(2.3)
(2.3)
–
–
12.5
Total
£m
227.8
(27.9)
(0.5)
(28.4)
0.2
0.6
(4.9)
1.2
196.5
Total
£m
196.5
6.6
(2.3)
4.3
0.5
0.8
202.1
* These amounts relate to transactions with owners of the Company recognised directly in equity.
The amounts above are attributable to equity holders of the parent company.
Financial Statements
60
Annual Report 2014
Consolidated Statement
of Cash Flows
at 31 December 2014
Profit/(loss) before tax
Depreciation of property, plant and equipment
Amortisation of intangible assets
Impairment losses on intangible assets
Finance income
Finance costs
Share based payments
Increase in trade and other receivables
Increase in trade and other payables
Cash generated from operations
Income tax paid
Net cash flows from operating activities
Cash flows from investing activities
Payments to acquire property, plant & equipment
Receipts from sale of property, plant & equipment
Payments to acquire subsidiaries
Net cash acquired with subsidiaries
Interest received
Net cash flows from investing activities
Cash flows from financing activities
Net proceeds from issue of ordinary share capital
Proceeds from borrowings
Repayment of borrowings
Dividends paid
Repayment of capital leases
Interest paid
Net cash flows from financing activities
Increase/(decrease) in cash and cash equivalents
Movement in cash and cash equivalents
Cash and cash equivalents at the start of year
Increase/(decrease) in cash and cash equivalents
Effect of exchange rates on cash and cash equivalents
Net cash and cash equivalents at end of year
Notes
8
9
9
20
2014
£m
9.4
4.7
7.1
–
(0.1)
0.4
0.8
(2.0)
1.9
22.2
(3.9)
18.3
(2.4)
–
(0.3)
–
0.1
(2.6)
0.4
–
(11.0)
–
(0.3)
(0.4)
(11.3)
4.4
18.2
4.4
(0.5)
22.1
2013
£m
(24.4)
5.1
7.5
20.4
(0.1)
0.5
1.2
(2.4)
8.0
15.8
(10.3)
5.5
(6.1)
0.1
(1.4)
0.2
0.1
(7.1)
0.2
20.0
(22.2)
(4.9)
(0.4)
(0.5)
(7.8)
(9.4)
28.5
(9.4)
(0.9)
18.2
Financial Statements
61
Notes to the Accounts
for the year ended 31 December 2014
1 Corporate information
The consolidated financial statements of SDL plc (the ‘Group’)
for the year ended 31 December 2014 were authorised for
issue in accordance with a resolution of the directors on 10
March 2015. SDL plc is a public limited company incorporated
and domiciled in England whose shares are publicly traded
on the London Stock Exchange. The consolidated financial
statements of SDL plc and its subsidiaries have been prepared
in accordance with International Financial Reporting Standards
(as adopted by the European Union).
The principal activities of the Group are described in Note 3.
2 Accounting policies
Basis of accounting
The consolidated financial statements of SDL plc and
its subsidiaries have been prepared
in accordance with
International Financial Reporting Standards as adopted by
the EU as relevant to the financial statements of SDL plc.
The Company has elected to prepare its parent company
financial statements in accordance with UK GAAP and these
are presented on pages 86 to 97. The consolidated financial
statements are prepared on a historical cost basis, except for
derivative financial instruments that have been measured at
fair value.
The consolidated financial statements are presented in UK
sterling and all values are rounded to the nearest hundred
thousand except where otherwise indicated.
Going Concern
In line with UK Corporate Governance Code requirements the
Directors have made enquiries concerning the potential of the
business to continue as a going concern. Enquiries included
a review of performance in 2014, 2015 annual plans, a review
of working capital including the liquidity position, financial
covenant compliance and a review of current cash levels. As at
31 December 2014, the Company had drawn £9 million of its
£30 million facility with Royal Bank of Scotland. £6 million has
been repaid in early 2015 and current forecasts show no funding
requirement beyond September 2015. As a result, they have a
reasonable expectation that the group has adequate resources
to continue in operational existence for the foreseeable future.
Given this expectation, they have continued to adopt the going
concern basis in preparing the Financial Statements.
Changes in accounting policy
The accounting policies adopted are consistent with those
of the previous financial year. During the year, the Group has
adopted the following new and revised standards:
IFRS 10 Consolidated Financial Statements
IFRS 11 Joint Arrangements
IFRS 12 Disclosure of Interests in Other Entities
IAS 27 Separate Financial Statements (2011)
IAS 28 Investments in Associates and Joint Ventures (2011)
The adoption of these standards has had no impact on the
Group’s results and balance sheets in the current or prior years.
Basis of preparation of consolidated
financial statements
The consolidated financial statements include the results of the
Company and all its subsidiaries for the full year or, in the case of
acquisitions, from the date control is transferred to the Group.
Subsidiaries are entities controlled by the Group. The Group
controls an entity when it is exposed to, or has rights to, variable
returns from its involvement with the entity and has the ability to
affect those returns through its power over the entity.
Business combinations
The Group has elected not to apply IFRS 3 retrospectively to
business combinations that took place before the date of 1
January 2004. As a result, goodwill recognised as an asset at
31 December 2003 is recorded at its carrying amount under
UK GAAP and is not amortised. The purchase method of
accounting is used to account for the acquisition of subsidiaries
by the Group. The cost of an acquisition is measured as the fair
value of the assets, equity instruments issued and liabilities
incurred or assumed at the date of exchange. Identifiable assets
and liabilities acquired and contingent liabilities assumed in a
business combination are measured initially at their fair values
at the acquisition date, irrespective of the extent of any non-
controlling interest. The excess of the cost of acquisition over
the fair value of the Group’s share of the identifiable net assets
acquired is recorded as goodwill. Transaction costs are expensed
as incurred. If the cost of acquisition is less than the fair value
of the net assets of the subsidiary acquired, the difference is
recognised directly in the income statement. If the business
combination allows for a provision of deferred or contingent
consideration, this will be provided in the accounts at the fair
value. Any changes to the fair value of deferred or contingent
consideration are recognised in profit or loss. If the business
combination allows for deferred compensation this will be
recognised in the income statement over the service period.
Intangible assets: Goodwill
Following initial recognition, goodwill is measured at cost less
any accumulated impairment losses. Goodwill is reviewed for
impairment annually or more frequently if events or changes
in circumstances indicate that the carrying value may be
impaired. As at the acquisition date, any goodwill acquired
is allocated to each of the cash generating units expected to
benefit from the combination’s synergies. A cash-generating
unit is the smallest identifiable group of assets that generate
cash inflows that are largely independent of the cash inflows
from other assets. Impairment is determined by assessing the
recoverable amount of the cash-generating unit, to which
the goodwill relates. Where the recoverable amount of the
cash-generating unit is less than the carrying amount, an
Financial Statements
62
Annual Report 2014
impairment loss is recognised. Goodwill arising on acquisitions
pre 1 January 2004 was capitalised and amortised over its
useful economic life, which was presumed to be 8 years. Any
goodwill remaining on the balance sheet at 1 January 2004 is
not amortised after 1 January 2004, but is also subject to annual
impairment reviews.
Intangible assets: Other
Intangible assets acquired separately are capitalised at cost and
from a business acquisition are capitalised at fair value as at the
date of acquisition. Following initial recognition, intangible
assets are held at cost less accumulated amortisation and
provision for impairment. Intangible assets are amortised on a
straight-line basis over their useful economic lives, which are
reassessed annually together with any assessment of residual
value. The useful lives of these intangible assets are assessed
over the expected period that benefits accrue to the Group.
Amortisation is charged as a separate line item on the income
statement.
Customer relationship intangible assets are amortised on a
straight-line basis over their estimated useful life of between
5 and 7 years. Intellectual property assets are amortised on a
straight-line basis over their estimated useful life of between
5 and 10 years.
Intangible assets: Impairment of assets
An impairment loss is recognised for the amount by which the
asset’s carrying amount exceeds its recoverable amount. The
recoverable amount is the higher of an asset’s fair value less
costs to sell and its value in use, where value in use is calculated
as the present value of the future cash flows expected to
be derived from the asset. For the purpose of assessing
impairment, assets are grouped at the lowest levels for which
there are separately identifiable cash flows (cash generating
units).
Property, plant and equipment
Property, plant and equipment are stated at historical cost
less depreciation and any impairment in value. Historical cost
includes the expenditure that is directly attributable to the
acquisition of the assets. All other repairs and maintenance are
charged to the income statement during the financial period in
which they are incurred. Depreciation is provided to write off
the cost less the estimated residual value based on prices at the
balance sheet date of property, plant and equipment over their
estimated useful economic lives as follows:
Leasehold improvements – The lower of ten years or the lease
term straight line
Computer equipment – 4-5 years straight line
Fixtures & fittings – 20% reducing balance
Motor vehicles – 20% reducing balance
Useful economic lives and residual values are assessed annually.
An item of property, plant and equipment is derecognised
upon disposal or when no future economic benefits are
expected to arise from the continued use of the asset. Any gain
or loss arising on derecognising the asset (calculated as the
difference between the net disposal proceeds and the carrying
amount of the item) is included in the income statement in the
year the item is derecognised.
Revenue
Revenue is recognised to the extent that it is probable that the
economic benefits will flow to the Group and the revenue can
be measured reliably. The following specific recognition criteria
must also be met before revenue is recognised:
• Rendering of services
Revenue on service contracts is recognised only when
their outcomes can be foreseen with reasonable certainty
and is based on the percentage stage of completion of
the contracts, calculated on the basis of costs incurred.
Accrued and deferred revenue arising on contracts is
included in trade receivables as accrued income and
in trade and other payables as deferred income as
appropriate.
Support and maintenance contracts are invoiced in
advance and normally run for periods of 12 months with
automatic renewal on the anniversary date. Revenue
in respect of support and maintenance contracts is
recognised evenly over the contract period.
Managed services (hosting) fees are recognised over the
term of the hosting contract on a straight-line basis.
Professional services and consulting revenue, which is
provided on a ‘time and expense’ basis, is recognised as
the service is performed.
For multiple element arrangements, revenue is allocated to
each element based on fair value regardless of any separate
prices stated within the contract. The portion of the revenue
allocated to an element is recognised when the revenue
recognition criteria for that element have been met.
•
Sale of goods
Revenue from the sale of goods is recognised when the
significant risks and rewards of ownership of the goods
have passed to the buyer, usually on delivery of the goods.
Revenue on software licenses and upgrades is recognised
on delivery, when there are no significant vendor
obligations remaining and the collection of the resulting
In circumstances
receivable
where a considerable future vendor obligation exists as
part of a software licence and related services contract,
revenue is recognised over the period that the obligation
exists per the contract.
is considered probable.
Foreign currencies
Transactions in foreign currencies are recorded using the rate
of exchange ruling at the date of the transaction. Monetary
assets and liabilities denominated in foreign currencies are
translated using the rate of exchange ruling at the balance
sheet date and the gains or losses on translation are included
in the income statement with the exception of differences on
foreign currency borrowings that provide a hedge against a net
investment in a foreign entity. These are taken directly to the
Statement of Comprehensive Income until the date of disposal
of the net investment, at which time they are recognised in the
consolidated income statement. The assets and liabilities of
overseas subsidiaries and branches are translated at the closing
exchange rate. Income statements of such undertakings are
translated at the average rate of exchange during the year.
Gains and losses arising on these translations are recognised
in Other Comprehensive Income. As permitted by IFRS 1, SDL
has elected to deem the cumulative amount of exchange
differences arising on translation of the net investments in
subsidiaries at 1 January 2004 to be nil.
Intra-company loans for which settlement is neither planned
nor likely to occur in the foreseeable future are defined as
quasi-equity loans and the currency translation differences on
Financial Statements
63
appropriate, the risks specific to the liability. Where discounting
is used, the increase in the provision due to the passage of time
is recognised as a finance cost.
Financial assets
Financial assets in the scope of IAS 39 are classified as either
financial assets at fair value through profit or loss, available
for sale financial assets, loans and receivables or held-to-
maturity investments, as appropriate. When financial assets
are recognised initially, they are measured at fair value, plus,
in the case of financial assets not at fair value through profit
or loss, directly attributable transaction costs. The Group
determines the classification of its financial assets after initial
recognition and, where allowed and appropriate, re-evaluates
this designation at each financial year-end.
Financial assets at fair value through profit or loss
Financial assets classified as held for trading are included
in the category ‘Financial assets at fair value through profit
or loss’. Financial assets are classified as held for trading if
they are acquired for the purpose of selling in the near term.
Derivatives are also classified as held for trading unless they are
designated and effective hedging instruments. Gains or losses
on investments held for trading are recognised in the income
statement.
Available-for-sale financial assets
Available-for-sale financial assets are non-derivative financial
assets that are designated as available-for-sale. Available-for-
sale assets are recognised initially at fair value plus any directly
attributable transaction costs. Subsequent to initial recognition,
they are measured at fair value and changes therein, other than
impairment losses are recognised in other comprehensive
income. When an asset is derecognised, the gain or loss
accumulated in equity is reclassified to profit or loss. Available-
for-sale financial assets comprise equity securities.
Loans and receivables
Loans and receivables are non-derivative financial assets with
fixed or determinable payments that are not quoted in an
active market. Such assets are carried at amortised cost using
the effective interest method. Gains and losses are recognised
in the income statement when the loans and receivables are
derecognised or impaired, as well as through the amortisation
process.
Held to maturity financial assets
If the Group has the positive intent and ability to hold debt
securities to maturity, then such financial assets are classified
as held to maturity. Held-to-maturity financial assets are
recognised initially at fair value plus any directly attributable
transaction costs. Subsequent to initial recognition, held-to-
maturity financial assets are measured at amortised cost using
the effective interest method, less any impairment losses.
retranslation at the balance sheet date are recognised in the
Statement of Comprehensive Income.
Hedge accounting
Where the Group uses derivative financial instruments such as
foreign currency and interest rate contracts to hedge its risks
associated with interest rate and foreign currency fluctuations,
such derivative financial instruments are stated at fair value.
The fair value of forward exchange contracts is calculated
by reference to current forward exchange rates for contracts
with similar maturity profiles. The fair value of interest rate
contracts is determined by reference to market values for
similar instruments. Where derivatives do not qualify for hedge
accounting, any gains or losses arising from changes in fair
value are taken directly to the profit or loss account for the
period.
Cash and cash equivalents
Cash and cash equivalents include cash in hand and deposits
held at call with banks. For the purpose of the Consolidated
Statement of Cash Flows, cash and cash equivalents consist of
cash and cash equivalents as defined above.
Borrowing costs
Borrowing costs are recognised as an expense in the period in
which they are incurred, unless they relate to capitalised assets.
Leases
Finance leases, which transfer to the Group substantially all the
risks and benefits incidental to ownership of the leased item,
are capitalised at the inception of the lease at the fair value of
the leased asset or, if lower, at the present value of the minimum
lease payments. Lease payments are apportioned between
the finance charges and reduction of the lease liability so as to
achieve a constant rate of interest on the remaining balance of
the liability. Finance charges are recognised directly within the
Income Statement.
Leases where the lessor retains substantially all the risks and
benefits of ownership of the asset are classified as operating
leases. Operating lease payments are recognised as an expense in
the income statement on a straight-line basis over the lease term.
Incentives received from landlord
The aggregate benefit of incentives is recognised as a credit to
the income statement over the life of the lease on a straight-
line basis.
Pension cost
The company contributes to a group personal pension
scheme for qualifying employees whereby it makes defined
contributions to independently administered personal pension
schemes. The company does not control any of the assets or
have any ongoing liabilities with regard to the performance of
and payments from these individual personal schemes. SDL
Global Solutions (Ireland) Limited operates a separate defined
contribution scheme whose assets are held separately from
the company. The pension cost charge for both schemes
represents contributions payable during the period.
Provisions
Provisions are recognised when the Group has a present
obligation (legal or constructive) as a result of a past event, it
is probable that an outflow of resources embodying economic
benefits will be required to settle the obligation and a reliable
estimate can be made of the amount of the obligation. If the
effect of the time value of money is material, provisions are
discounted using a current pre-tax rate that reflects, where
Financial Statements
64
Annual Report 2014
Derecognition of financial assets and liabilities
A financial asset or liability is generally derecognised when the
contract that gives rise to it is settled, sold, cancelled or expires.
Where an existing financial liability is replaced by another from
the same lender on substantially different terms, or the terms of
an existing liability are substantially modified, such as exchange
or modification, it is treated as a derecognition of the original
liability and the recognition of the new liability, such that the
difference in the respective carrying amounts together with
any costs or fees incurred are recognised in the profit or loss.
Taxation
The charge for current taxation is based on the results for
the year as adjusted for items which are non-assessable or
disallowed, based on tax rates that are enacted or substantively
enacted at the balance sheet date.
Deferred income tax is provided, using the liability method, on
temporary differences at the balance sheet date between the
tax bases of assets and liabilities and their carrying amounts for
financial reporting purposes.
Deferred income tax liabilities are recognised for all taxable
temporary differences except:
• where the deferred income tax liability arises from the initial
recognition of an asset or liability in a transaction that is not
a business combination and, at the time of the transaction,
affects neither the accounting profit or loss nor taxable
profit or loss; and
•
in respect of taxable temporary differences associated with
investments in subsidiaries, where the timing of the reversal
of the temporary differences can be controlled and it is
probable that the temporary differences will not reverse in
the foreseeable future.
Deferred income tax assets are recognised for all deductible
temporary differences, carry-forward of unused tax assets and
unused tax losses, to the extent that it is probable that taxable
profit will be available against which the deductible temporary
differences, and the carry-forward of unused tax assets and
unused tax losses can be utilised, except:
• where the deferred income tax asset relating to the
deductible temporary difference arises from the initial
recognition of an asset or liability in a transaction that is not
a business combination and, at the time of the transaction,
affects neither the accounting profit or loss nor taxable
profit or loss; and
•
in respect of deductible temporary differences associated
with investments in subsidiaries, deferred tax assets are
only recognised to the extent that it is probable that the
temporary differences will reverse in the foreseeable future
and taxable profit will be available against which the
temporary differences can be utilised.
The carrying amount of deferred income tax assets is reviewed
at each balance sheet date and reduced to the extent that
it is no longer probable that sufficient taxable profit will be
available to allow all or part of the deferred income tax asset
to be utilised.
In the United Kingdom, the Group is entitled to a tax deduction
for amounts treated as remuneration on exercise of certain
employee share options. As explained under ‘Share based
payments’ below, a remuneration expense is recorded in the
consolidated income statement over the period from the grant
date to the vesting date of the relevant options. As there is a
temporary difference between the accounting and tax bases,
a deferred tax asset may be recorded. The deferred tax asset
arising on share option awards is calculated as the estimated
amount of tax deduction to be obtained in the future (based
on the Group’s share price at the balance sheet date) pro-
rated to the extent that the services of the employee have
been rendered over the vesting period. If this amount exceeds
the cumulative amount of the remuneration expense at the
statutory rate, the excess is recorded directly in equity, against
retained earnings. Similarly, current tax relief in excess of the
cumulative amount of the remuneration expense at the
statutory rate is also recorded in retained earnings.
Deferred income tax assets and liabilities are measured at the
tax rates that are expected to apply to the year when the asset
is realised or the liability is settled, based on tax rates (and tax
laws) that have been enacted or substantively enacted at the
balance sheet date.
Income tax relating to items recognised directly in equity is
recognised in equity and not in the income statement.
Revenues, expenses and assets are recognised net of the
amount of VAT except:
• where the VAT incurred on a purchase of goods and services
is not recoverable from the taxation authority, in which case
the VAT is recognised as part of the cost of acquisition of the
asset or as part of the expense item as applicable; and
•
trade receivables and payables are stated with the amount
of VAT included.
The net amount of VAT recoverable from, or payable to, the
taxation authority is included as part of receivables or payables
in the balance sheet.
Share based payments
(including directors) of
Employees
receive
remuneration in the form of share-based payment transactions,
whereby employees render services in exchange for shares or
rights over shares (‘Equity-settled transactions’).
the Group
Equity-settled transactions
The cost of equity-settled transactions with employees is
measured by reference to the fair value at the date at which
they are granted and is recognised as an expense over the
vesting period, which ends on the date on which the relevant
employees become fully entitled to the award. Fair value is
determined by using an appropriate option pricing model. In
valuing equity-settled transactions, no account is taken of any
vesting conditions, other than conditions linked to the price of
the shares of the company (market conditions). The volatility in
the models is calculated by reference to historical share price.
The cost of equity-settled transactions is recognised, together
with a corresponding increase in equity, on a cumulative
straight line basis over the term from the date of grant to the
date on which the relevant employees become entitled to the
award (‘vesting date’). The cumulative expense recognised for
equity settled transactions at each reporting date until the
vesting date reflects the number of awards that, in the opinion
of the directors of the Group at that date, vest.
No expense is recognised for awards that do not ultimately
vest, except for awards where vesting is conditional upon a
market condition, which are treated as vesting irrespective of
whether or not the market condition is satisfied, provided that
all other performance conditions are satisfied.
Where the terms of an equity-settled award are modified, as
Financial Statements
a minimum an expense is recognised as if the terms had not
been modified. In addition, an expense is recognised over the
remainder of the vesting period for any increase in the value of
the transaction as a result of the modification, as measured at
the date of modification.
Where an equity-settled award is cancelled, it is treated as if
it had vested on the date of cancellation, and any expense
not yet recognised for the award is recognised immediately.
However, if a new award is substituted for the cancelled award,
and designated as a replacement award on the date that it is
granted, the cancelled and new awards are treated as if they
were a modification of the original award, as described in the
previous paragraph.
The Group has taken advantage of the transitional provisions of
IFRS 2 in respect of equity-settled awards and has applied IFRS
2 only to equity-settled awards granted after 7 November 2002
that had not vested at 1 January 2005.
National Insurance on Share Option Grants: The anticipated
National Insurance charge on gains made by employees over
the period from date of grant of the option to the end of the
performance period has been provided for.
Research and development costs
incurred. Development
Research costs are expensed as
expenditure incurred on an individual project is capitalised
when its future recoverability can reasonably be regarded
as assured and technical feasibility and commercial viability
can be demonstrated. Where these criteria are not met the
expenditure is expensed to the income statement. Following
the initial capitalisation of the development expenditure the
cost model is applied, requiring the asset to be carried at
cost less any accumulated amortisation and accumulated
impairment losses. Any expenditure capitalised is amortised
over the period of expected future sales from the related
project. The carrying value of development costs is reviewed
for impairment annually when the asset is not yet in use or
more frequently when an indicator of impairment arises during
the reporting year indicating that the carrying value may not
be recoverable.
Development costs that are subject to amortisation are reviewed
for impairment whenever events or changes in circumstances
indicate that the carrying amount may not be recoverable.
65
New standards and interpretations not applied
IASB and IFRIC have issued a number of amendments as part
of the Annual Improvement Cycle with an effective date of
1 February 2015. The Directors do not anticipate that the adoption
of these amendments will have a material impact on the Group’s
financial statements in the period of initial application.
Significant critical accounting judgements, estimates and
assumptions
Judgements
The preparation of
the Group’s consolidated financial
judgements,
statements requires management to make
estimates and assumptions that affect the reported amounts
of revenues, expenses, assets and liabilities, and the disclosure
of contingent liabilities, at the end of the reporting period.
However, uncertainty about these estimates and assumptions
could result in outcomes that require a material adjustment to
the carrying amount of the asset or liability affected in future
periods.
In the process of applying the Group’s accounting policies,
management has made the following judgements, which have
the most significant effect on the amounts recognised in the
consolidated financial statements:
Revenue - technology revenue
Technology revenue includes licenced software and related
services. Where software is sold as a perpetual licence, revenue
is typically recognised on delivery. Support and maintenance
and other services generally form part of the contract and the
revenue is recognised as the services are performed. In these
cases often significant judgement is required in allocating
the consideration receivable to each element of the contract,
which requires estimation of the fair value of the delivered and
undelivered elements of the contract. This judgement could
materially affect the timing and quantum of revenue and profit
recognised in each period.
Estimates and assumptions
The key assumptions and estimates concerning the future and
other key sources of estimation uncertainty at the reporting
date, that have significant risk of causing a material adjustment
to the carrying amounts of assets and liabilities within the next
financial year are discussed below:
One-off costs
Impairment
One-off costs are disclosed and described separately in the
financial statements where it is necessary to do so to provide
a better understanding of the financial performance of the
Group. They are material items of expense or income that
have been shown separately by virtue of their significant
nature or amount. One-off items include significant costs of
restructuring, refinancing and other costs that are considered
to be non-recurring.
Segment reporting
Segment results that are reported to the Chief Operating
Decision Maker include items directly attributable to a segment
as well as those that can be allocated on a reasonable basis.
Following the completion of the Group’s 2013 reorganisation,
the Group has also revisited its cost allocation methodologies
during the year to better represent how shared costs and
services are consumed by each segment. The impact of this
restatement has been to reallocate costs of £7.0m between
segments. In accordance with IFRS8, the operating segments
for the comparative period have been restated.
The determination of whether or not goodwill has been
impaired requires an estimate to be made of the value
in use of the cash generating unit to which goodwill
has been allocated. The value in use calculation includes
estimates about the future financial performance of the cash
generating units, management’s estimates of discount rates,
long-term operating margins and long-term growth rates
(note 11). If the results of the cash generating unit in a future
period are materially adverse to the estimates used for the
impairment testing an impairment charge may be triggered.
Taxes
Uncertainties exist with respect to the
interpretation of
complex tax regulations and the amount and timing of future
taxable income. Given the wide range of international business
relationships and the long-term nature and complexity of existing
contractual agreements, differences arising between the actual
results and the assumptions made, or future changes to such
assumptions, could necessitate future adjustments to tax income
and expense already recorded. Differences of interpretation may
arise on a wide variety of issues depending on the conditions
prevailing in the respective Group company’s domicile.
Financial Statements
66
Annual Report 2014
Deferred tax assets are recognised for all unused tax losses
to the extent that it is probable that taxable profit will be
available against which the losses can be utilised. Significant
management judgement is required to determine the
amount of deferred tax assets that can be recognised, based
upon the likely timing and the level of future taxable profits
together with future tax planning strategies.
Further details on taxes are disclosed in Note 5.
Other estimates and assumptions
Revenue - rendering of services
Management makes estimates of the total costs that will be
incurred by SDL on a contract by contract basis. Management
reviews the estimate of total costs on each contract on an ongoing
basis to ensure that the revenue recognised accurately reflects
the proportion of the work done at the balance sheet date.
Share based payments
The Group measures the cost of equity-settled transactions with
employees by reference to the fair value of the equity instruments
at the date at which they are granted. Estimating fair value for
share-based payment transactions requires determining the
most appropriate valuation model, which is dependent on the
terms and conditions of the grant. This estimate also requires
determining the most appropriate inputs to the valuation
model including the expected life of the share option, volatility
and dividend yield and making assumptions about them. The
assumptions and models used for estimating fair value for share-
based payment transactions are disclosed in Note 19.
3 Segment information
The Group operates in the Customer Experience Management industry. For management purposes, the Group is organised into
business units based on their products and services. Following the completion of the Group’s 2013 reorganisation. The Group has
two reportable operating segments as follows:
•
•
The Language Services segment is the provision of a translation service for customer’s multilingual content in multiple languages.
The Technology segment is the sale of enterprise, desktop and statistical machine translation technologies, content management
campaign management, social media monitoring and marketing analytic technologies together with associated consultancy
and other services.
The Chief Operating Decision Maker monitors the results of the operating segments separately for the purpose of making decisions
about resource allocation and performance assessment prior to charges for tax and amortisation.
Following the Group’s organisation, the Group has also revisited its cost allocation methodologies during the year to better
represent how shared costs and services are consumed by each segment. In accordance with IFRS 8, the operating segments for the
comparative period have been restated.
Year ended
31 December 2014
Language Services
Technology
Sub total
Amortisation
Profit before taxation
External Revenue
Total Revenue
Depreciation
£m
146.8
113.6
260.4
£m
146.8
113.6
260.4
£m
1.6
3.1
4.7
Year ended
31 December 2013 - restated
External Revenue
Total Revenue
Depreciation
Language Services
Technology
Sub total
Historic litigation costs
Restructuring costs
Impairment charge ( Note 4)
Total
Amortisation
Loss before taxation
£m
150.5
115.6
266.1
–
–
–
£m
150.5
115.6
266.1
–
–
–
266.1
266.1
£m
1.7
3.4
5.1
–
–
–
5.1
Segment profit/(loss)
before taxation
and amortisation
£m
26.3
(9.8)
16.5
(7.1)
9.4
Segment profit /(loss)
before taxation
and amortisation
£m
24.6
(16.4)
8.2
(1.4)
(3.3)
(20.4)
(16.9)
(7.5)
(24.4)
Financial Statements
Geographical analysis of external revenues by country of domicile is as follows:
UK
USA
Republic of Ireland
Netherlands
Belgium
Germany
Canada
Rest of World
67
2013
£m
63.9
77.2
24.7
21.0
16.1
15.4
11.8
36.0
2014
£m
70.0
72.1
22.1
20.9
17.2
15.2
10.9
32.0
260.4
266.1
A Geographical analysis of external revenues by destination is provided in the Strategic Review on page 9.
Geographical analysis of non-current assets excluding deferred tax is as follows:
UK
USA
Rest of World
2014
£m
172.6
33.7
5.4
211.7
2013
£m
173.8
40.9
5.5
220.2
Goodwill and intangibles recognised on consolidation are included in the country which initially acquired the business giving rise
to the recognition of goodwill and intangibles.
Financial Statements
68
Annual Report 2014
4 Other revenue and expenses
Group operating profit is stated after charging/(crediting):
Included in administrative expenses:
Research and development expenditure
Bad debt charge
Depreciation of property, plant and equipment – owned assets
Depreciation of property, plant and equipment – leased assets
Amortisation of intangible assets
Operating lease rentals for plant and machinery
Operating lease rentals for land and buildings
Net foreign exchange gains
Share based payment charge
2014
£m
28.1
0.3
4.5
0.2
7.1
0.5
6.8
(2.2)
1.4
2013
£m
28.8
0.8
4.9
0.2
7.5
0.6
6.9
–
1.2
The net foreign exchange gains above arose due to movements in foreign currencies between the time of the original transaction
and the realisation of the cash collection or spend, and the retranslation of US Dollar and Euro denominated intra-group balances.
Research and development costs
Management continually review research and development expenditure to assess whether any costs meet the criteria for
capitalisation. There have been no costs capitalised in 2014 (2013: £nil) with the primary criteria for non-capitalisation being technical
and commercial feasibility achieved late in the development cycle for new product releases.
Auditor’s remuneration
Audit of the Group financial statements
Other fees to auditors:
Local statutory audits for subsidiaries
Taxation compliance services
Other services
Staff costs
Wages and salaries
Social security costs
Pension costs (included in administrative expenses)
Expense of share based payments
2014
£m
0.3
0.1
0.2
0.1
2014
£m
120.1
15.5
4.3
1.4
141.3
2013
£m
0.3
0.1
0.1
0.1
2013
£m
124.6
15.5
4.4
1.2
145.7
The Company operates a personal pension scheme for qualifying employees. Other Group companies contribute to defined
contribution type arrangements for their qualifying members. The pension cost charge for the year represents contributions payable
by the group to these schemes and amounted to £4.3 million (2013: £4.4 million).
The average number of employees during the year, including executive directors, was made up as follows:
Administration and sales
Production
Finance costs
Bank loans
Other interest paid
2014
Number
1,201
2,044
3,245
2014
£m
0.3
0.1
0.4
2013
Number
1,214
1,963
3,177
2013
£m
0.3
0.2
0.5
Financial Statements
Finance income
Bank interest receivable
One-off costs
Historic litigation costs
Onerous lease
Redundancy costs
Impairment charge
Other
69
2013
£m
0.1
2013
£m
1.4
0.4
2.5
20.4
0.4
25.1
2014
£m
0.1
2014
£m
(0.3)
–
0.5
–
(0.2)
–
One-off costs relate to costs associated with the ongoing historic litigation claim against the Group, the costs associated with the
re-organisation of the Group in late 2013 and a goodwill impairment write down relating to the Group’s Content and Analytic
Technologies CGU (see Note 11).
These have been separately disclosed in the income statement to provide a better guide to underlying business performance.
5 Income tax
(a) Income tax on profit:
Consolidated income statement
Current taxation
UK Income tax charge
Current tax on income for the period
Adjustments in respect of prior periods
Foreign tax
Current tax on income for the period
Adjustments in respect of prior periods
Total current taxation
Deferred income taxation
Origination and reversal of temporary differences
Total deferred income tax
Tax expense (see (b) below)
Consolidated statement of other comprehensive income
Current taxation
UK Income tax credit
Income tax charge on currency translation differences
on foreign currency quasi equity loans to foreign subsidiaries
Total current taxation
2014
£m
2013
£m
0.9
0.1
1.0
5.0
(0.1)
4.9
5.9
(3.1)
(3.1)
0.7
0.2
0.9
4.1
0.3
4.4
5.3
(1.8)
(1.8)
2.8
3.5
2014
£m
2013
£m
1.1
1.1
0.1
0.1
A tax credit in respect of share based compensation for current taxation of £nil (2013: £nil) has been recognised in the statement of
changes in equity in the year.
A tax credit in respect of share based compensation for deferred taxation of £nil (2013: £0.2 million) has been recognised in the
statement of changes in equity in the year.
Financial Statements
70
(b) Factors affecting tax charge:
Annual Report 2014
The tax assessed on the profit on ordinary activities for the year is higher than the standard rate of income tax in the UK of 21.5%
(2013: 23.25%). The differences are reconciled below:
Consolidated income statement
Profit/ (loss) on ordinary activities before tax
Profit/ (loss) on ordinary activities at standard rate of tax in the UK 21.5% (2013: 23.25%)
Expenses not deductible for tax purposes
Impairment of goodwill
Adjustments in respect of previous years
Capital allowances for the period in excess of depreciation
Recognition of tax losses brought forward previously not recognised
Utilisation of tax losses brought forward previously not recognised
Current tax losses not available for offset
Effect of overseas tax rates
Other
2014
£m
9.4
2.0
0.4
–
0.1
–
(2.1)
(1.6)
3.6
0.3
0.1
2013
£m
(24.4)
(5.7)
0.9
4.7
0.5
(0.5)
–
(1.0)
5.2
0.2
(0.8)
Tax expense (see (a) above)
2.8
3.5
(c) Factors that may affect future tax charges:
The Group may claim a Schedule 23 tax credit in respect of certain share based compensation benefits. Due to the requirements of
IAS 12, in conjunction with IFRS 2, the amount of benefit that can be recognised in the income statement has been restricted in the
current year and may also be restricted in future periods. Any surplus tax credit will be recorded in equity.
There are temporary differences which arise in relation to unremitted earnings of overseas subsidiaries. Since the Group is able to
control dividend distributions from these companies it is unlikely that further UK tax on repatriation of these earnings will be payable
in the foreseeable future. Consequently no deferred tax liability has been provided.
(d) Deferred income tax:
The amounts recognised and unrecognised for deferred income tax are set out below:
Depreciation in advance of capital allowances
Other short-term temporary differences
Tax losses
Net deferred income tax asset / (liability)
Recognised
2014
£m
Unrecognised
2014
£m
Recognised
2013
£m
Unrecognised
2013
£m
0.5
(3.5)
3.9
0.9
–
–
6.7
6.7
0.9
(5.2)
2.0
(2.3)
–
–
2.7
2.7
The Group has unrecognised tax losses in net terms of £6.7 million (2013: £2.7 million) that may be available for use by offset against
future taxable profits in the companies in which the losses arose. Deferred tax assets have not been recognised in respect of these
losses as the Group cannot foresee profitability in the companies where the losses arose with sufficient certainty. The Group has
other tax losses amounting to £29.6 million (2013: £37.6 million).
Included within other short term temporary differences are deferred tax assets in respect of potential Schedule 23 tax benefits of
£0.5 million (2013: £0.4 million) and a deferred tax liability in respect of the amortisation of certain intangible assets acquired of £4.2
million (2013: £5.6 million).
The Group has recognised deferred tax assets on losses of £3.9 million (2013: £2.0 million), which is based on forecast future taxable
profits in certain tax jurisdictions.
At 31 December 2014, the net deferred income tax position is represented by a deferred income tax asset of £5.3 million (2013: £3.7
million) and a deferred income tax liability of £4.4 million (2013: £6.0 million).
(e) Reconciliation of movement on deferred tax liability:
Financial Statements
At 1 January
Retranslation of opening balances
Deferred tax liability arising on intangible assets acquired
Reversal of temporary differences arising on the amortisation of intangibles
Other temporary differences arising in the period
Change in rate from 23% to 20%
Deferred tax liability at 31 December
(f ) Reconciliation of movement on deferred tax asset:
At 1 January
Retranslation of opening balances
Temporary differences arising in the period
Deferred income tax asset arising on share based payments recorded in statement of changes in equity
Other temporary differences arising in the period
Deferred tax asset at 31 December
71
2013
£m
8.3
0.1
0.2
(1.7)
–
(0.9)
6.0
2013
£m
4.4
(0.1)
(0.7)
0.2
(0.1)
3.7
2014
£m
6.0
–
–
(1.4)
(0.2)
–
4.4
2014
£m
3.7
0.1
1.5
–
–
5.3
Reductions in the UK corporation tax rate from 26% to 24% (effective from 1 April 2012) and to 23% (effective 1 April 2013) were
substantively enacted on 26 March 2012 and 3 July 2012 respectively. Further reductions to 21% (effective from 1 April 2014) and
20% (effective from 1 April 2015) were substantively enacted on 2 July 2013. This will reduce the company’s future current tax charge
accordingly. The deferred tax asset of £5.3 million (2013: £3.7 million) and liability of £4.4 million at 31 December 2014 (2013: £6.0
million) have been calculated based on the rate of 20% which was substantively enacted at the balance sheet date or local tax rates
as applicable in overseas territories.
6 Dividends
Amounts recognised as distributions to equity holders in the year:
Final dividend for the year ended 31 December 2013 was nil
(Year ended 31 December 2012: 6.1 pence per share)
2014
£m
–
2013
£m
4.9
A final dividend for the year ended 31 December 2014 of 2.5 pence per share will be proposed at the Annual General Meeting and
has not been included as a liability in the financial statements.
7 Earnings per share
The calculation of basic earnings per ordinary share is based on a profit after tax of £6.6 million (2013: loss of £27.9 million) and
80,758,772 (2013: 80,283,053) ordinary shares, being the weighted average number of ordinary shares in issue during the period.
The diluted earnings per ordinary share is calculated by including in the weighted average number of shares the dilutive effect of
potential ordinary shares related to committed share options as described in note 19. For 2014, the diluted ordinary shares were
based on 81,373,392 ordinary shares that included 614,620 potential ordinary shares.
The following reflects the income and share data used in the calculation of adjusted earnings per share computations before one-off
costs:
Profit / (loss) for the year
One-off costs
Amortisation of intangible fixed assets
Less: tax benefit associated with the amortisation of intangible fixed assets and one-off costs
Adjusted profit for the year
2014
£m
6.6
–
7.1
(1.4)
12.3
2013
£m
(27.9)
25.1
7.5
(2.6)
2.1
Adjusted earnings per share is shown as the Directors believe that earnings before amortisation and one-off costs is reflective of the
underlying performance of the business.
Financial Statements
72
Weighted average number of ordinary shares for basic earnings per share
Effect of dilution resulting from share options
Weighted average number of ordinary shares adjusted for the effect of dilution
Adjusted earnings per ordinary share – basic (pence)
Adjusted earnings per ordinary share – diluted (pence)
Annual Report 2014
2014
No.
2013
No.
80,758,772
80,283,053
614,620
939,379
81,373,392
81,222,432
2014
15.10
14.98
2013
2.57
2.54
There have been no material transactions involving ordinary shares or potential ordinary shares between the reporting date and the
date of completion of the financial statements.
8 Property, plant and equipment
Leasehold
Improvements
£m
Computer
Equipment
£m
Fixtures
& Fittings
£m
Motor
Vehicles
£m
Cost:
At 1 January 2013
Additions
Acquisition of subsidiaries
Currency adjustment
At 1 January 2014
Additions
Disposals
Currency adjustment
At 31 December 2014
Accumulated depreciation:
At 1 January 2013
Provided during the year
Disposals
Currency adjustment
At 1 January 2014
Provided during the year
Disposals
Currency adjustment
At 31 December 2014
Net book value
At 31 December 2014
At 1 January 2014
1.8
0.2
–
(0.1)
1.9
0.2
(0.1)
–
2.0
(1.1)
(0.2)
–
0.1
(1.2)
(0.2)
0.1
–
(1.3)
0.7
0.7
17.4
5.4
(0.2)
(0.3)
22.3
1.7
(2.5)
0.5
22.0
(10.2)
(4.6)
0.1
0.4
(14.3)
(4.2)
2.5
(0.4)
(16.4)
5.6
8.0
3.3
0.3
–
–
3.6
0.5
(0.2)
(0.1)
3.8
(2.4)
(0.3)
–
–
(2.7)
(0.3)
0.2
0.1
(2.7)
1.1
0.9
0.1
–
–
–
0.1
–
(0.1)
–
–
(0.1)
–
–
–
(0.1)
–
0.1
–
–
–
–
Total
£m
22.6
5.9
(0.2)
(0.4)
27.9
2.4
(2.9)
0.4
27.8
(13.8)
(5.1)
0.1
0.5
(18.3)
(4.7)
2.9
(0.3)
(20.4)
7.4
9.6
Included in property, plant and equipment are assets held under finance lease of £0.1 million at 31 December 2014 (2013: £0.2
million).
Financial Statements
9 Intangible assets
Cost:
At 1 January 2013
Acquisition of subsidiaries
Currency adjustment
At 1 January 2014
Currency adjustment
At 31 December 2014
Amortisation:
At 1 January 2013
Provided during the year
Impairment loss
At 1 January 2014
Provided during the year
Currency adjustment
At 31 December 2014
Net book value:
At 31 December 2014
At 1 January 2014
73
Total
£m
291.8
2.1
0.3
294.2
0.7
294.9
(57.3)
(7.5)
(20.4)
(85.2)
(7.1)
–
(92.3)
Customer
Relationships
£m
Intellectual
Property
£m
Goodwill
£m
212.0
1.3
0.2
213.5
0.6
214.1
(12.2)
–
(20.4)
(32.6)
–
–
(32.6)
19.6
0.5
–
20.1
0.1
20.2
(9.9)
(2.4)
–
(12.3)
(2.3)
0.1
(14.5)
5.7
7.8
60.2
0.3
0.1
60.6
–
60.6
(35.2)
(5.1)
–
(40.3)
(4.8)
(0.1)
(45.2)
15.4
20.3
Customer relationships and intellectual property are amortised on a straight-line basis over their estimated useful lives of between
5 and 10 years. As from 1 January 2004, the date of transition to IFRS, goodwill is no longer amortised but is now subject to annual
impairment testing (see note 11).
181.5
202.6
180.9
209.0
Financial Statements
74
10 Investments in subsidiaries
Annual Report 2014
Details of the investments (excluding dormant companies) in which the Group or Company holds more than 20% of the nominal
value of ordinary share capital are as follows:
Name of Company
Held directly:
Country of
Incorporation
Holding
Proportion of
Voting Rights
Primary nature of Business
SDL Sheffield Limited
England & Wales
Ordinary
100%
Language Services
Software & Documentation
Localisation France SARL
SDL Sweden AB
SDL Global Solutions (Ireland) Limited
SDL International Belgium NV
SDL Software Technology
(Shenzhen) Co Ltd
SDL Inc
SDL Poland Sp zoo
SDL International America Inc
SDL Japan KK
SDL Holdings BV
SDL do Brazil Global Solutions Ltda
SDL Trisoft NV
SDL Enterprise Technologies Inc
SDL Multilingual Solutions Private Ltd
SDL Hellas MEPE
Automated Language
Processing Services Ltd
SDL Turkey Translation Services
& Commerce Ltd
SDL Chile SA
Alterian Ltd
France
Sweden
Ireland
Belgium
China
United States
of America
Poland
United States
of America
Japan
Netherlands
Brazil
Belgium
United States
of America
India
Greece
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
100%
100%
100%
100%
100%
Language Services
Language Services
Language Services and Technology
Language Services
Language Services and Technology
Ordinary
100%
Holding company
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
Language Services
Language Services
Language Services and Technology
Holding company
Language Services
Technology
Technology
Language Services
Language Services
Holding company
Ordinary
100%
Language Services
England & Wales
Ordinary
Turkey
Chile
Ordinary
England & Wales
Ordinary
Bemoko Consulting Limited
England & Wales
Ordinary
Held indirectly:
SDL Passolo GmbH
SDL Italia Unipersonale Srl
Software Documentation Localization
Spain, S.L.
SDL International Nederland BV
SDL International (Canada) Inc
SDL Nederland Holding BV
SDL Tridion Holding BV
Germany
Italy
Spain
Netherlands
Canada
Netherlands
Netherlands
SDL Multilingual Services GmbH & Co KG
Germany
SDL Multi-Lingual Solutions (Singapore)
PTE Ltd
Singapore
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
SDL Magyaror szaj szolgaltato Kft
Hungary
Ordinary
SDL CZ sro
SDL Traduceri SRL
SDL Zagreb doo
SDL doo Ljubljana
SDL CZ sro
SDL Traduceri SRL
Czech Republic
Ordinary
Romania
Croatia
Slovenia
Ordinary
Ordinary
Ordinary
Czech Republic
Ordinary
Romania
Ordinary
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
Language Services
Holding company
Technology
Technology
Language Services
Language Services
Language Services
Language Services
Language Services
Holding Company
Language Services
Language Services
Language Services
Language Services
Language Services
Language Services
Language Services
Language Services
Language Services
Financial Statements
75
Name of Company
SDL Zagreb doo
SDL doo Ljubljana
SDL Tridion GmbH
Tridion AB
SDL Tridion BV
SDL Tridion BVBA
SDL Tridion Hispania SL
SDL Tridion SAS
SDL Tridion Ltd
SDL Tridion Inc
SDL Tridion KK
Interlingua Group Ltd
Alp Services Inc
SDL Multilingual Service GmbH
SDL Multilingual Services Verwaltungs
GmbH
SDL Quatron BV
ZAO SDL Rus
XyEnterprise Inc
Country of
Incorporation
Croatia
Slovenia
Germany
Sweden
Netherlands
Belgium
Spain
France
Holding
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
England & Wales
Ordinary
United States
of America
Ordinary
Japan
Ordinary
England & Wales
Ordinary
United States
of America
Germany
Germany
Netherlands
Russia
United States
of America
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
XyEnterprise Ltd
England & Wales
Ordinary
SDL Fredhopper Group BV
SDL Fredhopper Holding BV
SDL Fredhopper BV
SDL Fredhopper Ltd
Spring Technologies Ltd
SDL Xopus BV
Language Weaver Inc
Language Weaver SRL
SDL Media Manager Holding BV
SDL Media Manager BV
Alterian Holdings Ltd
Alterian Technology Ltd
Netherlands
Netherlands
Netherlands
Ordinary
Ordinary
Ordinary
England & Wales
Ordinary
Bulgaria
Netherlands
United States
of America
Romania
Netherlands
Netherlands
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
England & Wales
Ordinary
England & Wales
Ordinary
SDL Technologies India PVT Ltd (formerly
Alterian Technologies India PVT Ltd)
India
Ordinary
Intrepid Consultants Ltd
England & Wales
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
SDL Technologies (Australia) Pty Ltd
Australia
Alterian do Brazil Software e Servicos Ltda
Brazil
Alterian BV
Alterian Pte Ltd
Alterian Vietnam Co Ltd
Alterian Holdings Inc
Alterian Inc
Intrepid Consultants Inc
SDL Government Inc
Netherlands
Singapore
Vietnam
United States
of America
United States
of America
United States
of America
United States
of America
Proportion of
Voting Rights
Primary nature of Business
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
Language Services
Language Services
Technology
Technology
Technology
Technology
Technology
Technology
Technology
Technology
Technology
Holding company
Holding company
Holding company
Holding company
Technology
Language Services
Technology
Technology
Holding company
Holding company
Technology
Technology
Technology
Technology
Technology
Technology
Holding company
Technology
Holding company
Technology
Technology
Technology
Technology
Technology
Technology
Technology
Technology
Holding company
Ordinary
100%
Technology
Ordinary
100%
Technology
Ordinary
100%
Technology
The proportion of voting rights held as at 31 December 2014 is as shown above. There have been no changes during 2014.
Financial Statements
76
Annual Report 2014
11 Impairment testing of goodwill and intangibles with indefinite lives
The Group has goodwill that has been acquired through business
combinations but does not hold any intangible assets that have
indefinite lives ascribed to them.
The approach of the Group is to test impairment at the cash
generating unit level. This is the lowest level of unit at which the
Group is effectively able to manage and monitor performance,
cash flow and goodwill. Following the Group’s reorganisation
in 2013, the Board has reassessed the Group’s cash generating
units (CGUs) and have determined that there are two CGUs for
testing; Language Services and Technology. The prior year CGUs
of Language Technology and Content and Analytic Technologies
are incorporated within the Technology CGU. The goodwill has
been allocated for impairment testing purposes to these cash
generating units and full attribution of overheads and group costs
has been made to each of the units in testing impairment. The
valuation is performed on a value-in-use basis.
In order to evaluate the recoverable amounts relating to the cash-
generating units, the following key information should be noted.
The recoverable amounts have been determined using the
detailed projections from the 2015 annual plan projected for a
five year period and subsequently into perpetuity, with a discount
rate applied. A 10 year forecast period was used for Content
and Analytic Technologies CGU in 2013 in recognition of the
developing nature of some of its technologies.
The discount rate has been calculated as the weighted average
cost of capital. Differential post-tax discount rates were used
reflecting a different risk weighting based on relative maturity
Carrying amount of goodwill allocated to cash-generating units:
Language Services
Technology
and size of the different cash generating units with 10.4% applied
to Language Services (2013: 10.6%) and 11.1% to Technology
(2013: 11.6%). These reflect the relative maturity of the businesses
and in aggregate approximate a group cost of capital of 10.8% for
2014 (2013: 11.1%). Pre tax discount rates range from 12.9% to
13.4% (2013: 12.5% to 13.5%). Budgets have been prepared at the
cash generating unit level based on historical trends adjusted for
expected events. These individual budgets have been aggregated
as the basis for the 2015 Group annual plan.
This methodology places strong emphasis on early year cash
flows and revenue growth assumptions in evaluating impairment.
Differential perpetual growth rates have been used reflecting the
relative maturity, penetration and profile of the cash generating
units with 2% applied to Language Services and 3% applied to
Technology (2013: 2% and 3% respectively). Differential growth
rates have been applied to the different cash-generating units
beyond the budget period. These are 5% (2013: 5%) for Language
Services and 9% (2013: 3–9%) for Technology.
Following a disappointing trading year in 2013 and the completion
of the 2013 impairment review, the group determined that the
carrying value of goodwill in its Content and Analytic Technologies
CGU was impaired by £20.4 million. This amount was recognised
in the income statement in 2013 (see note 4).
2014
£m
21.0
160.5
181.5
2013
£m
21.0
159.9
180.9
Sensitivity to changes in assumptions
Management has identified three key assumptions for which there could be a reasonably possible change that would cause the
carrying amount to exceed the recoverable amount for the Technology CGU.
The following table shows the absolute amount by which these assumptions would need to change individually in order for the
estimated recoverable amount of the Technology CGU to be equal to the carrying amount.
Discount Rate
Perpetuity growth rate
Revenue growth (CAGR for years 2-5)
Change required for the
carrying amount to equal
recoverable amount
2014
1.4%
(2.0)%
(1.7)%
Having performed its impairment test on the Language Services CGU and having analysed the various sensitivities to this test,
management believe that no reasonably possible change in any of the above key assumptions would cause the carrying value of
the Language Services CGU to exceed its recoverable amount.
Next impairment test
The next impairment tests will be performed at the 2015 year end. However, management continues to monitor the performance
of its cash generating units closely and should it believe a significant event has occurred which deteriorates the forward operating
prospects of the business it will bring forward these tests.
Financial Statements
12 Trade and other receivables (current)
Trade receivables
Corporation tax
Prepayments and accrued income
77
2013
£m
53.0
3.5
14.4
70.9
2014
£m
52.8
2.3
16.6
71.7
All amounts are due within one year. Trade receivables are non-interest bearing and on average have thirty to sixty day settlement
terms. Accrued income is the value of unbilled work recognised on projects in accordance with the accounting policy outlined in
Note 2.
As at 31 December 2014, trade receivables at nominal value of £1.4 million (2013: £2.0 million) were impaired and provided for.
Movements in the provision for impairment of receivables were as follows:
At 1 January 2013
Charge for the year
Utilised in the year
Currency adjustment
At 31 December 2013
Charge for the year
Utilised in the year
Currency adjustment
At 31 December 2014
£m
1.7
0.8
(0.5)
–
2.0
0.2
(0.8)
–
1.4
As at 31 December, the ageing analysis of trade receivables, net of impairment, is as follows:
2014
2013
Total
£m
52.8
53.0
Not past due
nor impaired
£m
42.7
44.7
Past due but not impaired
<30 days
£m
30-60 days
£m
>60 days
£m
6.2
6.6
1.6
1.3
2.3
0.4
13 Cash and cash equivalents
Cash at bank and in hand
2014
£m
22.1
2013
£m
18.2
Where cash at bank and in hand earns interest, interest accrues at floating rates based on daily bank deposit rates. The fair value of
cash and cash equivalents is £22.1 million (2013: £18.2 million). At 31 December 2014, the Group had available £21 million (2013:
£10 million) of undrawn committed borrowing facilities. For the purposes of the cash flow statement, cash and cash equivalents
comprise the amounts shown above.
14 Trade and other payables (current)
Trade payables
Other taxes and social security costs
Other payables
Accruals and deferred income
2014
£m
7.1
3.7
5.9
67.3
84.0
2013
£m
6.3
3.9
6.0
63.7
79.9
The terms and conditions of the above financial liabilities are as follows: trade payables are non-interest bearing and are normally
settled within 45 days; other taxes and social security costs are non-interest bearing and have an average term of 1 month; other
payables, generally, are non-interest bearing and have an average term of 2 months.
Financial Statements
78
15 Trade and other payables (non-current)
Other payables
Deferred income
Annual Report 2014
2014
£m
0.1
1.2
1.3
2013
£m
0.6
2.0
2.6
Other payables include amounts payable under finance lease arrangements for purchase of property, plant and equipment.
The amounts payable under finance leases are set out below:
Future
minimum
lease
payments
2014
£m
0.4
0.1
0.5
Interest
2014
£m
–
–
–
Present value
of minimum
lease
payments
2014
£m
Future
minimum
lease
payments
2013
£m
0.4
0.1
0.5
0.2
0.2
0.4
Interest
2013
£m
–
–
–
Present value
of minimum
lease
payments
2013
£m
0.2
0.2
0.4
2014
£m
9.0
2013
£m
20.0
Within one year
After one year but not more than
five years
16 Loans and overdraft
Current instalments due on bank loans
During the year, the Group repaid £11 million on the Group’s £30 million facility.
The loans are secured on the net assets of certain Group subsidiaries. The £30 million loan facility is repayable in three and six month
instalments, under a revolving facility that expires on 28 September 2015. The loan bears interest at LIBOR+ margin, the margin
varying between 1.3% and 1.9% depending on the ratio of the Group gross borrowing to earnings before interest, tax, depreciation
and amortisation.
17 Provisions
At 1 January 2014
Arising during the year
Released during the year
Utilised
At 31 December 2014
Current 2014
Non-current 2014
Current 2013
Non-current 2013
Property
Leases
£m
1.2
–
–
(0.4)
0.8
0.3
0.5
0.8
0.6
0.6
1.2
Other
Total
£m
2.0
1.0
£m
3.2
1.0
(0.5)
(0.5)
–
(0.4)
2.5
2.5
–
2.5
1.7
0.3
2.0
3.3
2.8
0.5
3.3
2.3
0.9
3.2
Financial Statements
Property leases
79
The provision for property leases is in respect of leasehold premises, from which the Group no longer trades, but is liable to fulfil
rent and other property commitments up to the lease expiry date. Obligations are payable within a range of 1 to 7 years. Amounts
provided are management’s best estimate of the likely future cash outflows. The provision has been discounted using market
interest rates. The undiscounted provision is £0.9 million (2013: £1.3 million).
Other
Other provisions include a number of employee, legal and product related amounts. Obligations are payable within 1-3 years.
Included in the above is a provision for £1.4 million (2013: £1.7 million) for ongoing litigation related to a former Trados shareholder’s
claim of breach of fiduciary duty by the former Trados Directors on the sale of Trados to SDL in 2005.
18 Share capital
Allotted, called up and fully paid
Ordinary shares of 1p each
At 1 January
Issued on exercise of share options
Issued on exercise of LTIPS
Issued as payment of deferred consideration
At 31 December
The following movements in the ordinary share capital of the company
occurred during the year:
1.
2.
294,368 ordinary shares of 1 pence each were allotted under the SDL
Share Option Scheme (1999), SDL Share Option Scheme (2010) and
earlier Unapproved Option Schemes at a price range of 117 pence to
279 pence per share for an aggregate consideration of £369,846.
74,447 ordinary shares of 1 pence each were allotted under the SDL
LTIP 2006 Scheme and 141,510 ordinary shares were allotted under
the conditional award granted in January 2011.
19 Share-based payment plans
2014
millions
2013
millions
2014
£m
2013
£m
80.4
0.3
0.2
0.1
81.0
80.2
0.8
-
-
0.2
80.4
-
-
-
0.8
0.8
-
-
-
0.8
3.
4.
1,106 ordinary shares of 1 pence each were allotted under the SDL
Save As You Earn Schemes at a price of 316 pence per share for an
aggregate consideration of £3,495.
In March 2014, 51,724 ordinary shares of 1 pence each were
allotted to four former shareholders of Bemoko Consulting Limited
as payment of the contingent consideration due as a result of the
acquisition of Bemoko Consulting Limited by the group in 2013.
Included within administrative expenses is a charge of £1.4 million relating to the Group’s employee share schemes (2013: charge of
£1.2 million). Details of the Group’s employee share schemes are set out below.
SDL Share Option Scheme
On 23 April 2010, following shareholder approval, the “SDL Share Option Scheme (2010)” was adopted. This replaced the “SDL Share
Option Scheme (1999)” for which options are still exercisable. The SDL Share Option Scheme (2010) permits the granting of both
options approved by HM Revenue and Customs within the statutory £30,000 limit and unapproved options, subject to performance
conditions. From 2010 onwards, all options have been granted in accordance with these rules.
The table below sets out the number and weighted average exercise prices (WAEP) of, and movements in, the SDL Share Options
Scheme during the year:
Outstanding at the beginning of the year
Granted during the year
Forfeited during the year
Exercised during the year
Expired during the year
Outstanding at the end of the year
Exercisable at 31 December
2014
No.
1,175,018
227,500
(224,476)
(294,368)
–
883,674
248,175
2014
WAEP
£3.83
£3.34
£5.76
£1.26
–
£4.03
£2.74
2013
No.
1,025,737
353,331
(180,050)
(24,000)
–
1,175,018
554,993
2013
WAEP
£3,84
£4.20
£4.89
£1.88
–
£3.83
£1.95
The weighted average share price at the date of exercise for the options exercised is £3.11 (2013: £3.90).
For the share options outstanding as at 31 December 2014, the weighted average remaining contractual life is 6.98 years (2013: 5.76
years).
The fair value of equity settled share options granted under the SDL Share Option Scheme is estimated as at the date of grant using
the Black Scholes model. The following table lists the inputs and key output to the model:
Financial Statements
80
Annual Report 2014
Weighted average share price (pence)
Weighted average fair value at grant date (pence)
Expected volatility
Expected option life
Expected dividends
Risk-free interest rate
2014
335
90
38%
3 years
0%
1.11%
The range of exercise prices for options outstanding at the end of the year was £1.19 - £7.48 (2013: £1.17-£7.48).
Exercise price
Date of Grant
Exercise Period
£1.01 - £1.50
£2.01 - £2.50
£2.51 - £3.00
£3.01 - £3.50
£3.51 - £4.00
£4.01 - £4.50
£4.51 - £5.00
£5.01 - £5.50
£6.51 - £7.00
£7.01 - £7.50
Total
02/04/04-04/04/05
10 years after grant date
22/03/06-03/10/06
10 years after grant date
28/02/08-02/03/09
10 years after grant date
07/04/14
23/05/07
17/04/13
12/04/10
10/09/10
18/05/11
10/04/12
10 years after grant date
10 years after grant date
10 years after grant date
10 years after grant date
10 years after grant date
10 years after grant date
10 years after grant date
2014
Number
7,500
23,700
211,775
216,500
5,200
298,343
–
–
–
120,656
883,674
2013
420
67
30%
3 years
2%
0.3%
2013
Number
291,618
23,700
234,475
–
5,200
336,899
–
–
146,331
136,795
1,175,018
SDL Long Term Incentive Plan
The SDL Long Term Share Incentive Plan, which was approved by shareholders in April 2006 (“the 2006 plan”), expired for the
purposes of new awards in April 2011. No further awards could be made after the expiry date but existing awards will remain
protected although they will only vest to the extent that the related performance conditions are met.
The 2006 plan has been replaced with the SDL Long Term Share Incentive Plan (2011) (“the 2011 Plan”) which received approval from
shareholders in April 2011. The 2011 Plan is broadly similar in construction. It has been updated to reflect current law and market
practice and the proposed performance conditions are designed to be more closely aligned to the company’s current business
strategy and objectives.
On 7 April 2014, 308,845 shares were granted under the 2011 Plan to the Executive Directors based on a market price of £3.335,
with a performance period of three years from date of grant. Senior management employees received awards totalling 840,702
throughout the year.
The fair value of equity-settled shares granted under the SDL Long Term Incentive Plan is estimated as at the date of grant using a
Monte-Carlo model, taking into account the terms and conditions upon which the options were granted. The following table lists
the inputs and key output to the model used in the year of grant:
Expected volatility
Weighted average fair value at grant date (pence)
Expected life
Expected dividends
Risk-free interest rate
Outstanding at the beginning of the year
Granted during the year
Exercised during the year
Forfeited during the year
Outstanding at the end of the year
Exercisable at 31 December
2014
39%
221
3 years
0%
1.0%
2013
No.
1,710,108
1,193,530
–
(989,800)
1,913,838
Nil
2013
31%
102
3 years
2%
0.3%
2013
WAEP
£0.01
£0.01
–
£0.01
£0.01
–
2014
No.
1,913,838
1,149,547
(74,454)
(870,882)
2,118,049
Nil
2014
WAEP
£0.01
£0.01
£0.01
£0.01
£0.01
All LTIPs are exercisable at nil cost to the individual (with the exception of the 1p nominal value of each share awarded).
Financial Statements
Retention Share Plan
81
In recognition of the fact that there will be three consecutive years in which the LTIP and Option awards are unlikely to meet the
performance criteria required to vest, the Board approved, in 2013, a share-based discretionary award which has been made to a
small targeted group of executives (excluding Executive Directors). Awards are based on a percentage of salary and vest in equal
tranches over two years, any unvested portion of a tranche lapses. The Board believes that this Retention Share Plan (RSP) will provide
benefit to the Group by creating appropriate performance incentives and facilitating the long-term retention of employees who add
significant value. The Remuneration Committee has the discretion to settle any awards that vest in cash or via shares.
The RSP was not approved by shareholders and therefore any shares required to satisfy vesting are either purchased by the Employee
Benefit Trust or cash settled. The funding of the trust is by way of a loan to the trustees.
On 17 April 2013, 1,137,026 shares were granted under the RSP to a small group of senior management excluding Executive Directors.
Further grants of 52,000 were made on 18 March 2014. After taking performance criteria and lapses into account, 157,000 shares, the
first of two equal tranches, vested in April 2014. The second and final tranche is due to vest on the second anniversary of the grant
date i.e. April 2015.
The fair value of equity-settled shares granted under the SDL Retention Share Plan is estimated as at the date of grant using a Black
Scholes model, taking into account the terms and conditions upon which the options were granted. The following table lists the
inputs and key output to the model used in the year of grant:
Expected volatility
Weighted average fair value at grant date (pence)
Expected life
Expected dividends
Risk-free interest rate
Outstanding at the beginning of the year
Granted during the year
Exercised during the year
Forfeited during the year
Outstanding at the end of the year
Exercisable at 31 December
2014
43.9%
343
1 year
0%
0.22%
2014
No.
678,196
52,000
(135,500)
(426,196)
168,500
21,500
2013
30.2%
392
1.5 years
1.5%
0.18%
2013
No.
–
1,137,026
–
(458,830)
678,196
Nil
All RSPs are exercisable at nil cost to the individual (with the exception of the 1p nominal value of each share awarded).
SDL Save As You Earn Scheme
On 24 April 2008 a Save As You Earn (SAYE) scheme was formally approved by the shareholders at the AGM. Following the success
of the UK and Netherlands SAYE schemes, in 2012 an extension to the international version was rolled out to SDL PLC’s subsidiary
companies in the United States and Canada. The rules are based on those of the UK in that employees must be eligible and there is a
monthly savings contract over a 3 year period. In 2014, 2013 and 2012, options were granted to UK, Netherlands, Canada and United
States scheme participants at 80% of the prevailing market price. The market price is taken the day prior to the date of invitations to
apply for an option. There are no performance conditions attached to the exercise of these options. These options may be exercised
within a fixed six-month period, three years from the date of grant or being made redundant.
The table below sets out the number and movements in, the SDL Save As You Earn Scheme during the year:
Outstanding at the beginning of the year
Granted during the year
Exercised during the year
Forfeited during the year
Outstanding at the end of the year
Exercisable at 31 December
2014
No.
391,447
432,141
(1,106)
(444,496)
377,986
Nil
2013
No.
296,407
323,215
(8,563)
(219,612)
391,447
Nil
For the SAYE shares outstanding as at 31 December 2014, the weighted average remaining contractual life is 2.18 years (2013:
1.82 years).
Financial Statements
82
Annual Report 2014
The fair value of equity settled share options granted under the SDL SAYE Scheme is estimated as at the date of grant using the Black
Scholes model. The following table lists the inputs and key output to the model in the year of grant:
Weighted average share price (pence)
Expected volatility
Expected option life
Expected dividends
Risk-free interest rate
2014
317
37%
2013
324
36%
1.6 years
1.4 years
0%
1.27%
1%
0.5%
For all Share Based payment models, the volatility is calculated from compounded daily logs of normal returns of the company share
price over a historic period commensurate with the expected life of the incentive.
20 Additional cash flow information
Analysis of Group net debt:
1 January 2014
Cash flow
Cash and cash equivalents
Loans
£m
18.2
(20.0)
(1.8)
£m
4.4
11.0
15.4
Cash acquired
on acquisition
£m
Exchange
differences
£m
31 December
2014
£m
–
–
–
(0.5)
–
(0.5)
22.1
(9.0)
13.1
Cash and cash equivalents
Loans
1 January 2013
Cash flow
£m
28.5
(22.2)
6.3
£m
(9.6)
2.2
(7.4)
Cash acquired
on acquisition
£m
Exchange
differences
£m
0.2
–
0.2
(0.9)
–
(0.9)
31 December 2013
£m
18.2
(20.0)
(1.8)
21 Commitments and contingencies
The Group has entered into commercial leases on certain properties used as offices. The future minimum rentals payable under
non-cancellable operating leases as at 31 December are as follows:
Within one year
After one year but
not more than five years
More than five years
Land and buildings
Other
Total
2014
£m
4.3
11.9
0.5
16.7
2013
£m
5.2
15.9
2.6
23.7
2014
£m
0.2
0.2
–
0.4
2013
£m
0.6
1.2
–
1.8
2014
£m
4.5
12.1
0.5
17.1
2013
£m
5.8
17.1
2.6
25.5
The future minimum rentals receivable under non-cancellable operating leases as at 31 December 2014 were £0.2 million (2013:
£0.2 million).
22 Related party disclosures
Compensation of key management personnel of the Group
Short term employee benefits
Post employment benefits
Total compensation paid to key management personnel
2014
£m
2.2
0.1
2.3
2013
£m
1.1
0.1
1.2
Full details of the Directors’ remuneration is included in the Directors’ Remuneration Report on pages 37 to 48.
Transactions between group companies, which are related parties, have been eliminated on consolidation and have not been
included in this note. The key management personnel are the Executive Directors of the Group.
Financial Statements
83
23 Financial risk management objectives and policies
An explanation of the Group’s financial risk management objectives, policies and strategies are set out in the Strategic Report on
pages 6 to 16.
Interest Rate Risk: Net debt has decreased from £1.8 million in 2013 to £13.1 million net cash in 2014. Borrowings amounted to £9.0
million at December 2014 (see note 16) which bears interest at LIBOR +1.3%. The Board remains of the opinion that operating with
low levels of debt is appropriate in the current economic environment, whilst maintaining sufficient debt facility headroom to
finance normal investment activities.
To ensure adequate working capital the Group maintains cash deposits and these deposits are affected by any movements in rates
of interest generally. These cash deposits are generally receiving interest income at LIBOR (or USD, EURO equivalent) plus a margin.
The Group seeks to place all cash surplus to operational requirements in secure money market funds. To enhance the interest
earning capacity of the Group, processes have been put in place to ensure that cash balances held by subsidiary companies are kept
as low as operationally possible. With regard to relative interest rates, adequate cash is retained in key operating currencies to fund
the operational needs of the Group.
The following table demonstrates the sensitivity to a 1 percent change in the UK £ interest rate:
Profit before tax gain/(loss)
+ 1 %
– 1 %
The following table demonstrates the sensitivity to a 1 percent change in the Euro interest rate:
Profit before tax gain/(loss)
+ 1 %
– 1 %
The following table demonstrates the sensitivity to a 1 percent change in the US$ interest rate:
2014
£m
(0.1)
0.1
2014
£m
–
–
2014
£m
0.1
(0.1)
2013
£m
(0.2)
0.2
2013
£m
–
–
2013
£m
0.1
(0.1)
Profit before tax gain/(loss)
+ 1 %
– 1 %
Liquidity Risk: The Group’s objective is to optimise the funds
currently available to it in order to maintain the lowest
operational borrowing profile necessary. At the end of 2014,
the Group had net cash of £13.1 million which comprised
of cash balances of £22.1 million and loans of £9.0 million.
Underpinning this philosophy are processes to manage
operating cash flow, with a focus on approvals policy for
significant cash outlays and credit control. The Group’s existing
loan facility expires on 28 September 2015.
Foreign Currency Risk: A significant amount of business is done
with customers in both the USA and Continental Europe with
approximately 42% of total invoicing done in US Dollar and
31% in Euro. The most significant sensitivity is to the US Dollar
as illustrated below. This overseas client base gives rise to short-
term debtors and cash balances in both US Dollars and Euros.
Consequently, the movements in the US Dollar/Sterling and
Euro/Sterling exchange rates affect the Group Balance Sheet, as
well as the Consolidated Income Statement. The Group seeks
to manage this risk in the first instance by looking to a natural
hedge and ensuring where possible currency needs in the USA
are funded from the settlement of US Dollar denominated
debtors. After a review of effectiveness the Group has not
entered into any new US Dollar hedges since 2008. At the end
of 2014, the Group has no hedges outstanding.
In addition, the Group has exposure on the Balance Sheet to the
movements in US Dollar/Sterling and Euro/Sterling exchange
rates as a result of intangible assets held in non functional
currency, the retranslation of US and continental European
overseas subsidiaries net assets into UK Sterling for consolidation
purposes and finally intercompany loan and trading relationships
held in non functional currency. In the case of the latter, this can
have an impact on net profitability where the intercompany
relationships are not treated for accounting purposes as equity
loans.
Income Statement
is also affected by
The Consolidated
movements in the US Dollar/Sterling and Euro/Sterling exchange
rates when sales to customers are converted to Sterling at the
date of the sales transaction, as this will vary from month to
month. This is partially offset by the effect of retranslating US
Dollar and Euro denominated costs into UK Sterling from month
to month.
Financial Statements
84
Annual Report 2014
The following table demonstrates the sensitivity to a 1 percent change in the US Dollar exchange rate:
Profit before tax gain/(loss)
+ 1 %
– 1 %
Statement of Financial Position* increase/(decrease) in net assets
+ 1 %
– 1 %
The following table demonstrates the sensitivity to a 1 percent change in the Euro exchange rate:
2014
£m
(0.8)
0.8
(0.7)
0.7
2014
£m
–
–
(1.3)
1.3
2013
£m
(0.5)
0.5
(0.6)
0.6
2013
£m
(0.1)
0.1
(1.1)
1.1
Profit before tax gain/(loss)
+ 1 %
– 1 %
Statement of Financial Position* increase/(decrease) in net assets
+ 1 %
– 1 %
* Based on the Statement of Financial Position at 31 December
Economic Conditions - Credit Control Risk: Given the economic
conditions at the end of 2014, SDL continues to benefit from a
diverse list of major clients of which no client contributes more
than 5% of sales. The Group is however continuing to place
emphasis on sound application of credit control processes
given the continuing difficult macro-economic conditions. The
Group has made provision against trade receivables to reflect
specific collection risks identified.
Capital Management: The Board monitors the total equity and
the cash and cash equivalents balance in considering its retained
capital and when and how a return of capital to shareholders
is appropriate. The Group maintains a strong capital base so as
to maintain employee, customer, market, investor and creditor
confidence in the business and to ensure that it continues to
operate as a going concern. The Board operates a progressive
dividend policy whereby dividends are set based on the
evolution of the Group’s profits. The Board is recommending a
final dividend in respect of the year end ended 31 December
2014 of 2.5 pence per share.
24 Derivatives and other financial instruments
Interest rate risk profile of financial assets and liabilities
The interest rate profile of the financial assets and liabilities of the Group as at 31 December is as follows:
Year ended 31 December 2014
Floating rate
Cash
Borrowings
Net cash
Within 1
year
£m
22.1
(9.0)
13.1
1 - 2
years
£m
–
–
–
2 - 3
years
£m
–
–
–
3 - 4
years
£m
–
–
–
Year ended 31 December 2013
Floating rate
Cash
Borrowings
Net cash
Within 1
year
£m
18.2
(20.0)
(1.8)
1 - 2 years
2 - 3 years
3 - 4 years
£m
–
–
–
£m
–
–
–
£m
–
–
–
4 - 5
years
£m
More than 5
years
£m
–
–
–
4 - 5
years
£m
–
–
–
–
–
–
More than 5
years
£m
–
–
–
Total
£m
22.1
(9.0)
13.1
Total
£m
18.2
(20.0)
(1.8)
Financial Statements
Maturity of financial liabilities
The table below summarises the maturity profile of the Group’s financial liabilities at 31 December 2014:
Floating rate
Trade and other payables
Short term loans
Provisions
Less than 12
months
£m
43.5
9.0
2.8
55.3
Over 12 months
£m
0.1
–
0.5
0.6
The table below summarises the maturity profile of the Group’s financial liabilities at 31 December 2013:
85
Total
£m
43.6
9.0
3.3
55.9
Trade and other payables
Short term loans
Provisions
The above tables exclude deferred income.
Less than 12
months
£m
43.3
20.0
2.3
65.6
Over 12 months
Total
£m
0.6
–
0.9
1.5
£m
43.9
20.0
3.2
67.1
The fair value of the contingent consideration included in other payables is estimated by reviewing purchase documentation and
forecast information. This represents a level 3 measurement in the fair value hierarchy under IFRS 7. Any subsequent remeasurement
to this liability will be recorded in the income statement.
Borrowing facilities
The Group maintains a £30 million facility with Royal Bank of Scotland which expires on 28 September 2015. The amount drawn at
31 December 2014 was £9 million (2013: £20 million).
Credit risk
The maximum credit risk exposure related to financial assets is represented by the carrying value as at the balance sheet date.
Fair values of financial assets and liabilities
The carrying value of financial assets and liabilities approximate their fair value. Fair values of assets and liabilities are based on their
carrying values. The directors consider that there were no material differences between the book values and fair values of all the
Group’s financial assets and liabilities at each year-end. The fair values have been calculated using the market interest rates where
applicable.
There are no hedging arrangements in place as at 31 December 2014 (2013: None).
The interest rate risk on the borrowings at 31 December 2014 is directly linked to the 3 month and 6 month LIBOR and is set out in
note 16. The interest rates that the Group would pay under the facilities are linked directly to these LIBOR rates.
25 Events after the statement of financial position date
There are no other known events occurring after the statement of financial position date that require disclosure.
Financial Statements
86
Annual Report 2014
Company Balance Sheet
at 31 December 2014
Fixed assets
Tangible assets
Investments in subsidiaries
Rent deposits
Current assets
Debtors: amounts falling due within one year
Debtors: amounts falling due after more than one year
Cash at bank and in hand
Current liabilities
Creditors: amounts falling due within one year
Interest bearing Loans and Borrowings
Net current liabilities
Total assets less current liabilities
Creditors: amounts falling due after more than one year
Provisions for liabilities and charges
Capital and reserves
Called up share capital
Share premium account
Profit and loss account
Total equity
Approved by the Board of directors on 10 March 2015
M Lancaster
Director
D Lavelle
Director
Notes
2
3
4
4
5
6
7
8
9,10
10
10
2014
£m
0.8
199.9
0.1
200.8
58.5
10.1
3.6
72.2
2013
£m
1.0
198.7
0.1
199.8
52.2
8.7
0.5
61.4
(107.2)
(9.0)
(116.2)
(95.7)
(20.0)
(115.7)
(44.0)
(54.3)
156.8
145.5
(25.3)
(26.6)
(2.8)
128.7
0.8
97.9
30.0
128.7
(2.2)
116.7
0.8
97.4
18.5
116.7
Financial Statements
87
Notes to the Accounts
for the year ended 31 December 2014
1 Accounting policies
The principal accounting policies that have been consistently
applied in arriving at the financial information set out in this
report are:
Accounting convention
The financial statements are prepared under the historical
cost convention as modified for certain items which have
been measured at fair value, namely financial instruments.
The financial statements are presented in accordance with
applicable accounting standards in the United Kingdom.
Basis of preparation of financial statements
No profit and loss account is presented for the Company as
permitted by Section 408 of the Companies Act 2006. The
Company’s result for the year is shown in note 13.
Fixed assets and depreciation
Depreciation is provided to write off the cost less the estimated
residual value of tangible fixed assets over their estimated
useful economic lives as follows:
Leasehold improvements – The lower of ten years or the lease
term straight line
Computer equipment – 4-5 years straight line
Fixtures & fittings – 20% reducing balance
Motor vehicles – 20% reducing balance
Foreign currencies
Transactions in foreign currencies are recorded using the rate of
exchange ruling at the date of the transaction. Monetary assets
and liabilities denominated in foreign currencies are translated
using the rate of exchange ruling at the balance sheet date and
the gains or losses on translation are included in the profit and
loss account.
The currency translation differences on retranslation of the
foreign branches at the balance sheet date are recognised
directly in equity.
Financial instruments
The Company uses forward foreign currency contracts and
options to reduce exposure to foreign exchange rates. The
Company also uses interest rate swaps to adjust interest rate
exposures. Such instruments are stated at fair value. Gains and
losses arising from changes in fair value are taken to the profit
and loss account in the period.
The Group’s consolidated financial statements contain financial
instrument disclosures which comply with FRS 29 ‘Financial
Instruments: Disclosures’. Consequently, the Company has
taken advantage of the exemption in FRS 29 not to present
separate financial instrument disclosures for the Company.
Leases
Assets acquired under finance leases and hire purchase
contracts are capitalised and the outstanding future obligations
are shown in creditors. Operating lease rentals are charged to
the profit and loss account on a straight-line basis over the
period of the lease. Operating lease income is credited to the
profit and loss account on a straight-line basis over the period
of the lease.
Incentives received from landlord
In accordance with UITF 28, the aggregate benefit of incentives
is recognised as a credit to the profit and loss account. The
benefits of the incentives are allocated over the life of the lease
on a straight line basis.
Pension cost
The Company contributes to a group personal pension
scheme for qualifying employees whereby it makes defined
contributions to independently administered personal pension
schemes. The company does not control any of the assets or
have any ongoing liabilities with regard to the performance of
and payments from these individual personal schemes.
Research and development
Research and development costs are written off as incurred in
the year of expenditure.
Revenue
Revenue is recognised to the extent that it is probable that the
economic benefits will flow to the Company and the revenue
can be measured reliably. The following specific recognition
criteria must also be met before revenue is recognised:
• Rendering of services
Revenue on service contracts is recognised only when
their outcomes can be foreseen with reasonable certainty
and is based on the percentage stage of completion of
the contracts, calculated on the basis of costs incurred.
Accrued and deferred revenue arising on contracts is
included in debtors as accrued income and creditors as
deferred income as appropriate.
Support and maintenance contracts are invoiced in advance
and normally run for periods of 12 months with automatic
renewal on the anniversary date. Revenue in respect of
support and maintenance contracts is recognised evenly
over the contract period.
Managed services (hosting) fees are recognised over the
term of the hosting contract on a straight-line basis.
Professional services and consulting revenue, which is
provided on a ‘time and expense’ basis, is recognised as the
service is performed.
For multiple element arrangements revenue is allocated
to each element on fair value regardless of any separate
prices stated within the contract. The portion of the revenue
Financial Statements
88
Annual Report 2014
allocated to an element is recognised when the revenue
recognition criteria for that element have been met.
• Sale of goods
Revenue from the sale of goods is recognised when the
significant risks and rewards of ownership of the goods
have passed to the buyer, usually on delivery of the goods.
Revenue on software licenses and upgrades is recognised
on delivery, when there are no significant vendor
obligations remaining and the collection of the resulting
receivable is considered probable. In circumstances where
a considerable future vendor obligation exists as part of a
software licence and related services contract, revenue is
recognised over the period that the obligation exists per
the contract.
Taxation
The charge for taxation is based on the profit for the year
and takes into account taxation deferred arising from timing
differences between the treatment of certain items for taxation
and accounting purposes.
Deferred tax is recognised in respect of all timing differences
that have originated but not reversed at the balance sheet date
where transactions or events have occurred at that date that will
result in an obligation to pay more, or a right to pay less or to
receive more, tax, with the following exceptions:
• provision is made for tax on gains arising from fair value
adjustments of fixed assets, and gains on disposal of fixed
assets that have been rolled over into replacement assets,
only to the extent that, at the balance sheet date, there is
a binding agreement to dispose of the assets concerned.
However no provision is made where, on the basis of all
available evidence at the balance sheet date, it is more
likely than not that the taxable gain will be rolled over into
replacement assets and charged to tax only where the
replacement assets are sold;
• provision is made for deferred tax that would arise on
remittance of the retained earnings of overseas subsidiaries,
only to the extent that, at the balance sheet date, dividends
have been accrued as receivable;
• deferred tax assets are recognised only to the extent that the
directors consider that it is more likely than not that there will
be suitable taxable profits from which the future reversal of
the underlying timing differences can be deducted.
Deferred tax is measured on an undiscounted basis at the tax
rates that are expected to apply in the periods in which timing
differences reverse, based on tax rates and laws enacted or
substantively enacted at the balance sheet date.
National Insurance Contributions on
Share Option Gains
In accordance with UITF abstract 25 “National
Insurance
contributions on Share Option Gains” the Company makes
provision for the National
Insurance contributions on a
straight-line basis over the vesting period of the options and
as remeasured each period thereafter until the options are
exercised. The remeasurement is based upon the share price at
the year-end.
Cash flow statement
The Company has taken advantage of the exemption granted
by Financial Reporting Standard 1 to not present a cash flow
statement.
Related party transactions
The Company has taken advantage of the exemption granted
by Financial Reporting Standard 8 from disclosing related party
transactions with entities that are 100% owned by the SDL plc
group.
Investments
Investments are recorded at cost less provision for impairment.
Investments denominated in foreign currency are recorded
using the rate of exchange at the date of acquisition.
Investments are reviewed annually for evidence of impairment.
Financial Assets
Investments in subsidiaries and associates
Investments in subsidiaries and associates are stated at cost less
any provision for impairment in value.
An impairment loss is recognised for the amount by which the
asset’s carrying amount exceeds its recoverable amount. The
recoverable amount is the higher of an asset’s fair value less costs
to sell and its value in use, where value in use is calculated as the
present value of the future cash flows expected to be derived
from the asset. For the purpose of assessing impairment, assets
are grouped at the lowest levels for which there are separately
identifiable income streams (income generating units).
Investments in unquoted equity investments which do not have
a reliable market value are stated at cost less provision for any
impairment in value. For investments where there is an actively
traded market the investment is stated at fair value, determined
by reference to a quoted market bid price at the close of business
on the balance sheet date.
Cash
Cash in bank represents cash in hand and deposits repayable
with any qualifying institution.
Debtors
Debtors are recorded at fair value on initial measurement and
are provided for where management consider an element of
the balance to be irrecoverable.
Financial liabilities
Financial liabilities are recognised when the Company becomes
party to the contracts which give rise to them and are classified
as financial liabilities at fair value through the profit and loss
or loans and payables as appropriate. When financial liabilities
are recognised initially, they are measured at fair value, plus in
the case of financial liabilities not at fair value through profit
and loss, directly attributable transaction costs. The Company
determines the classification of its financial liabilities at initial
recognition and re-evaluates this designation at each financial
year end.
A financial liability is generally de-recognised when the
contract that gives rise to it is settled, sold, cancelled or expires.
Where an existing financial liability is replaced by another
from the same lender on substantially different terms, or the
terms of an existing liability are substantially modified, such
an exchange or modification is treated as a de-recognition of
the original liability and the recognition of a new liability such
that the difference in the respective carrying amounts together
with any costs or fees incurred are recognised in profit or loss.
Financial liabilities at fair value through profit and loss constitute
financial guarantee contracts. The fair value is calculated based
on an assessment of both the likelihood that the financial
Financial Statements
89
guarantee would be called upon and expected cash flows
which could arise. Liabilities are carried in the balance sheet
at fair value and re-evaluated at each financial year end, with
gains or losses recognised in the profit and loss account.
The company has taken advantage of the transitional provisions
of FRS 20 in respect of equity-settled awards and has applied
FRS 20 only to equity-settled awards granted after 7 November
2002 that had not vested at 1 January 2005.
Group and Treasury share transactions
is accounted for as equity-settled
Where a parent entity grants rights to its equity instruments
to its employees of a subsidiary, and such share-based
compensation
in the
consolidated financial statements of the parent, FRS 20 requires
the subsidiary to record an expense for such compensation,
with a corresponding increase recognised in equity as a
contribution from the parent. Consequently, in the financial
statements of the Company, the Company recognises an
increase in fixed asset investments or amounts owed by group
companies for the aggregate amount of these contributions,
with a credit to equity for the same amount.
New UK GAAP
In the company financial statements for the year ending 31
December 2015, the directors of the Company expect to
adopt either the FRS 101 reduced disclosure framework or FRS
102 applying the disclosure exemptions in accordance with
paragraphs 1.8 to 1.12.
Provisions
Provisions are recognised when the Company has a present
obligation as a result of a past event and management believe
it to be probable that the Company will be required to settle
that obligation. Provisions are measured at management’s best
estimate of the expenditure required to settle the obligation at
the balance sheet date and are discounted to net present value
where this is deemed to be material.
Bank borrowings
Interest bearing bank loans are recorded at the proceeds
received net of direct issue costs. Finance charges, including
premiums payable on settlement and direct issue costs,
are accounted for on an accruals basis in the profit and loss
account using the effective rate of interest method.
Share based payments
Employees (including directors) of the company receive
remuneration in the form of share-based payment transactions,
whereby employees render services in exchange for shares or
rights over shares (‘equity-settled transactions’).
Equity-settled transactions
The cost of equity-settled transactions with employees is
measured by reference to the fair value at the date at which
they are granted and is recognised as an expense over the
vesting period, which ends on the date on which the relevant
employees become fully entitled to the award. Fair value is
determined by using an appropriate option pricing model. In
valuing equity-settled transactions, no account is taken of any
vesting conditions, other than conditions linked to the price of
the shares of the company (market conditions).
The cost of equity-settled transactions is recognised, together
with a corresponding increase in equity, ending on the date
on which the relevant employees become entitled to the
award (‘vesting date’). The cumulative expense recognised
for equity settled transactions at each reporting date until the
vesting date reflects the extent to which the vesting period
has expired and the number of awards that, in the opinion of
the directors of the Company at that date, based on the best
available estimate of the number of equity instruments that
will ultimately vest.
No expense is recognised for awards that do not ultimately
vest, except for awards where vesting is conditional upon a
market condition, which are treated as vesting irrespective of
whether or not the market condition is satisfied, provided that
all other performance conditions are satisfied.
Where the terms of an equity-settled award are modified,
as a minimum an expense is recognised as if the terms had
not been modified. In addition, an expense is recognised for
any increase in the value of the transaction as a result of the
modification, as measured at the date of modification.
Where an equity-settled award is cancelled, it is treated as if
it had vested on the date of cancellation, and any expense
not yet recognised for the award is recognised immediately.
However, if a new award is substituted for the cancelled award,
and designated as a replacement award on the date that it is
granted, the cancelled and new awards are treated as if they
were a modification of the original award, as described in the
previous paragraph.
Financial Statements
90
2 Tangible fixed assets
Cost
At 1 January 2014
Currency adjustment
Additions
At 31 December 2014
Depreciation
At 1 January 2014
Currency adjustment
Provided during the year
At 31 December 2014
Net book value
At 31 December 2014
At 31 December 2013
Annual Report 2014
Leasehold
Improvements
Computer
Equipment
Fixtures & Fittings
£m
0.6
–
–
0.6
(0.5)
–
–
(0.5)
0.1
0.1
£m
1.4
–
0.2
1.6
(0.6)
–
(0.4)
(1.0)
0.6
0.8
£m
0.4
–
–
0.4
(0.3)
–
–
(0.3)
0.1
0.1
Total
£m
2.4
–
0.2
2.6
(1.4)
–
(0.4)
(1.8)
0.8
1.0
The net book value of assets held under finance leases is £nil as at 31 December 2014 (2013: £nil).
3 Investments in subsidiaries
Details of the investments in which the Company holds more than 20% of the nominal value of ordinary share capital are given in
Note 10 of the Group financial statements.
Cost
At 1 January 2014
Additions
At 31 December 2014
Impairment
At 1 January 2014
Charge for the year
At 31 December 2014
Net book value
At 31 December 2014
At 31 December 2013
Additions in the year represent share options granted to employees of subsidiary companies.
£m
219.1
1.2
220.3
(20.4)
–
(20.4)
199.9
198.7
Financial Statements
4 Debtors
Debtors: Amounts falling due within one year
Trade debtors
Amounts owed by Group undertakings
Corporation Tax
Deferred income tax asset
Prepayments and accrued income
2014
£m
7.2
45.0
0.8
1.2
4.3
58.5
Accrued income is the value of unbilled work recognised on projects per the accounting policy outlined in Note 1.
Debtors: Amounts falling due after more than one year
Amounts owed by Group undertakings
2014
£m
10.1
91
2013
£m
6.1
41.8
0.8
1.2
2.3
52.2
2013
£m
8.7
Amounts owed by Group undertakings comprise intra-group loans which fall due after more than 5 years and bear interest at rates
of LIBOR+2%.
The amounts recognised and unrecognised for deferred income tax are set out below:
Recognised
2014
£m
Unrecognised
2014
£m
Recognised
2013
£m
Unrecognised
2013
£m
Depreciation in advance of capital allowances
Other short-term temporary differences
Share based payments
Tax losses
Net deferred income tax asset
0.6
0.1
0.5
–
1.2
–
–
–
–
–
Reconciliation of movement on deferred tax asset:
At 1 January
Temporary differences arising in the period
Deferred tax asset at 31 December
0.6
0.1
0.5
–
1.2
2014
£m
1.2
–
1.2
–
–
–
0.1
0.1
2013
£m
0.8
0.4
1.2
The Company has tax losses in net terms of £nil million (2013: £0.1 million) that may be available for use by offset against future
taxable profits. Deferred tax assets have not been recognised in respect of these losses as the company cannot foresee profitability
with sufficient certainty.
5 Creditors
Creditors: amounts falling due within one year
Trade creditors
Amounts owed to Group undertakings
Corporation tax
Other taxes and social security costs
Other creditors
Accruals and deferred income
2014
£m
1.9
95.8
0.7
0.3
0.5
8.0
107.2
2013
£m
1.4
86.6
-
0.5
0.5
6.7
95.7
Financial Statements
92
6 Interest bearing loans and borrowings
Current instalments due on bank loans
During the year, the Company repaid £11 million on the Group’s £30 million facility.
Annual Report 2014
2014
£m
9.0
2013
£m
20.0
The loans are secured on the net assets of certain Group subsidiaries. The £30 million loan facility is repayable in three and six month
instalments, under a revolving facility that expires on 28 September 2015. The loan bears interest at LIBOR+ margin, the margin
varying between 1.3% and 1.9% depending on the ratio of the Group gross borrowing to earnings before interest, tax, depreciation
and amortisation.
7 Creditors
Creditors: amounts falling due after more than one year
Amounts owed to Group undertakings
Other creditors
2014
£m
24.8
0.5
25.3
2013
£m
26.1
0.5
26.6
Amounts owed to Group undertakings comprise intra-group loans which fall due after more than 5 years and bear interest at rates
of LIBOR+1.5% to LIBOR+3%.
8 Provisions for liabilities and charges
2014
£m
0.3
2.5
2.8
2013
£m
0.4
1.8
2.2
Provision 1
January 2014
£m
Arising during
the year
£m
Released during
the year
£m
Utilised during
the year
£m
Provision 31
December 2014
£m
0.4
1.8
2.2
–
1.0
1.0
–
(0.3)
(0.3)
(0.1)
–
(0.1)
0.3
2.5
2.8
Property leases
Other
Movement in provisions:
Property leases
Other
Property leases
The provision for property leases is in respect of leasehold premises, from which the Company no longer trades, but is liable to
fulfil rent and other property commitments up to the lease expiry dates. Obligations are payable within a range of one to 8 years.
Amounts provided are management’s best estimate of the likely future cash outflows. The provision has been discounted using
market interest rates. The undiscounted provision is £0.4 million (2013: £0.4 million).
Other provisions
Other provisions include a number of employee and legal amounts. Included in the above is a provision for £1.4 million (2013:
£1.7 million) for ongoing litigation related to a former Trados shareholder’s claim of breach of fiduciary duty by the former Trados
Directors on the sale of Trados to SDL in 2005.
Financial Statements
93
9 Share capital
Allotted, called up and fully paid
Ordinary shares of 1p each
At 1 January
Issued on exercise of share options
Issued on exercise of LTIPS
Issued as payment of deferred consideration
At 31 December
The following movements in the ordinary share capital of the
company occurred during the year:
1.
2.
294,368 ordinary shares of 1 pence each were allotted under
the SDL Share Option Scheme (1999), SDL Share Option
Scheme (2010) and earlier Unapproved Option Schemes at
a price range of 117 pence to 279 pence per share for an
aggregate consideration of £369,846.
74,447 ordinary shares of 1 pence each were allotted under
the SDL LTIP 2006 Scheme and 141,510 ordinary shares
were allotted under the conditional award granted in
January 2011.
2014
millions
2013
millions
2014
£m
2013
£m
80.4
0.3
0.2
0.1
81.0
80.2
0.8
–
–
0.2
80.4
–
–
–
0.8
0.8
–
–
–
0.8
3.
4.
1,106 ordinary shares of 1 pence each were allotted under
the SDL Save As You Earn Schemes at a price of 316 pence
per share for an aggregate consideration of £3,495.
In March 2014, 51,724 ordinary shares of 1 pence each were
allotted to four former shareholders of Bemoko Consulting
Limited as payment of the contingent consideration due as
a result of the acquisition of Bemoko Consulting Limited by
the group in 2013.
10 Reconciliation of movements in shareholders funds
Share
Capital
Share
Premium
Account
£m
At 1 January 2013
Loss for the period
Dividend paid
Currency translation differences on net investments
Arising on share issues
Share based payments
At 1 January 2014
Profit for the period
Currency translation differences on net investments
Arising on share issues
Share based payments
At 31 December 2014
All amounts are attributable to equity holders of the parent.
£m
0.8
–
–
–
–
–
0.8
–
–
–
–
0.8
Profit &
Loss
Account
£m
47.2
(24.9)
(4.9)
(0.1)
–
1.2
18.5
10.2
0.1
–
1.2
30.0
Total
£m
144.8
(24.9)
(4.9)
(0.1)
0.6
1.2
116.7
10.2
0.1
0.5
1.2
128.7
96.8
–
–
–
0.6
–
97.4
–
–
0.5
–
97.9
Financial Statements
94
Annual Report 2014
11 Commitments and contingencies
The Company had annual commitments under operating leases as set out below:
Leases expiring:
Within one year
After one year but
not more than five years
More than five years
Land and
Buildings
2014
£m
–
–
1.0
1.0
Other
2014
£m
–
–
–
–
Total
2014
£m
–
–
1.0
1.0
Land and
Buildings
2013
£m
–
–
1.0
1.0
Other
2013
£m
–
–
–
–
Total
2013
£m
–
–
1.0
1.0
12 Share based payment plans
Included within administrative expenses is a charge of £0.4 million relating to the Company’s employee share schemes (2013: charge
of £1.2 million). Details of the Company’s employee share schemes are set out below.
SDL Share Option Scheme
On 23 April 2010, following shareholder approval, the “SDL Share Option Scheme (2010)” was adopted. This replaced the “SDL Share
Option Scheme (1999)” for which options are still exercisable. The SDL Share Option Scheme (2010) permits the granting of both
options approved by HM Revenue and Customs within the statutory £30,000 limit and unapproved options, subject to performance
conditions. From 2010 onwards, all options have been granted in accordance with these rules.
The table below sets out the number and weighted average exercise prices (WAEP) of, and movements in, the SDL Share Options
Scheme during the year:
Outstanding at the beginning of the year
Granted during the year
Forfeited during the year
Exercised during the year
Outstanding at the end of the year
Exercisable at 31 December
2014
No.
1,175,018
227,500
(224,476)
(294,368)
883,674
248,715
2014
WAEP
£3.83
£3.34
£5.76
£1.26
£4.03
£2.74
2013
No.
1,025,737
353,331
(180,050)
(24,000)
1,175,018
554,993
2013
WAEP
£3.84
£4.20
£4.89
£1.88
£3.83
£1.95
The weighted average share price at the date of exercise for the options exercised is £3.11 (2013: £3.90).
For the share options outstanding as at 31 December 2014, the weighted average remaining contractual life is 6.98 years (2013:
5.76 years).
The fair value of equity settled share options granted under the SDL Share Option Scheme is estimated as at the date of grant using
the Black Scholes model. The following table lists the inputs and key output to the model used in the year of the grant:
Weighted average share price (pence)
Weighted average fair value at grant date (pence)
Expected volatility
Expected option life
Expected dividends
Risk-free interest rate
2014
335
90
38%
3 years
0%
1.11%
The range of exercise prices for options outstanding at the end of the year was £1.19 – £7.48 (2013: £1.17-£7.48).
Exercise price
Date of Grant
Exercise Period
£1.01 - £1.50
£2.01 - £2.50
£2.51 - £3.00
02/04/04-04/04/05
10 years after grant date
22/03/06-03/10/06
10 years after grant date
28/02/08-02/03/09
10 years after grant date
2014
Number
7,500
23,700
211,775
2013
420
67
30%
3 years
2%
0.3%
2013
Number
291,618
23,700
234,475
Financial Statements
Exercise price
Date of Grant
Exercise Period
£3.01 - £3.50
£3.51 - £4.00
£4.01 - £4.50
£4.51 - £5.00
£5.01 - £5.50
£6.51 - £7.00
£7.01 - £7.50
Total
07/04/14
23/05/07
17/04/13
12/04/10
10/09/10
18/05/11
10/04/12
10 years after grant date
10 years after grant date
10 years after grant date
10 years after grant date
10 years after grant date
10 years after grant date
10 years after grant date
95
2013
Number
–
5,200
336,899
–
–
146,331
136,795
1,175,018
2014
Number
216,500
5,200
298,343
–
–
–
120,656
883,674
SDL Long Term Incentive Plan
The SDL Long Term Share Incentive Plan, which was approved by shareholders in April 2006 (“the 2006 plan”), expired for the
purposes of new awards in April 2011. No further awards could be made after the expiry date but existing awards will remain
protected although they will only vest to the extent that the related performance conditions are met.
The 2006 plan has been replaced with the SDL Long Term Share Incentive Plan (2011) (“the 2011 Plan”) which received approval from
shareholders in April 2011. The 2011 Plan is broadly similar in construction. It has been updated to reflect current law and market
practice and the proposed performance conditions are designed to be more closely aligned to the company’s current business
strategy and objectives.
On 7 April 2014, 308,845 shares were granted under the 2011 Plan to the Executive Directors based on a market price of £3.335,
with a performance period of three years from date of grant. Senior management employees received awards totalling 840,702
throughout the year.
The fair value of equity-settled shares granted under the SDL Long Term Incentive Plan is estimated as at the date of grant using a
Monte-Carlo model, taking into account the terms and conditions upon which the options were granted. The following table lists
the inputs and key output to the model used in the year of grant:
Expected volatility
Weighted average fair value at grant date (pence)
Expected life
Expected dividends
Risk-free interest rate
Outstanding at the beginning of the year
Granted during the year
Exercised during the year
Forfeited during the year
Outstanding at the end of the year
Exercisable at 31 December
2014
39%
221
3 years
0%
1.0%
2013
No.
1,710,108
1,193,530
–
(989,800)
1,913,838
Nil
2013
31%
102
3 years
2%
0.3%
2013
WAEP
£0.01
£0.01
–
£0.01
£0.01
–
2014
No.
1,913,838
1,149,547
(74,454)
(870,882)
2,118,049
Nil
2014
WAEP
£0.01
£0.01
£0.01
£0.01
£0.01
–
All LTIPs are exercisable at nil cost to the individual (with the exception of the 1p nominal value of each share awarded).
Financial Statements
96
Retention Scheme Award
Annual Report 2014
In recognition of the fact that there will be three consecutive years in which the LTIP and Option awards are unlikely to meet the
performance criteria required to vest, the Board approved, in 2013, a share-based discretionary award which has been made to a
small targeted group of executives (excluding Executive Directors). Awards are based on a percentage of salary and vest in equal
tranches over two years, any unvested portion of a tranche lapses. The Board believes that this Retention Share Plan (RSP) will provide
benefit to the Group by creating appropriate performance incentives and facilitating the long-term retention of employees who add
significant value. The Remuneration Committee has the discretion to settle any awards that vest in cash or via shares.
The RSP was not approved by shareholders and therefore any shares required to satisfy vesting are either purchased by the Employee
Benefit Trust or cash settled. The funding of the trust is by way of a loan to the trustees.
On 17 April 2013, 1,137,026 shares were granted under the RSP to a small group of senior management excluding Executive Directors.
Further grants of 52,000 were made on 18 March 2014. After taking performance criteria and lapses into account, 157,000 shares, the
first of two equal tranches, vested in April 2014. The second and final tranche is due to vest on the second anniversary of the grant
date i.e. April 2015.
The fair value of equity-settled shares granted under the SDL Retention Share Plan is estimated as at the date of grant using a Black
Scholes model, taking into account the terms and conditions upon which the options were granted. The following table lists the
inputs and key output to the model used in the year of grant:
Expected volatility
Weighted average fair value at grant date (pence)
Expected life
Expected dividends
Risk-free interest rate
Outstanding at the beginning of the year
Granted during the year
Exercised during the year
Forfeited during the year
Outstanding at the end of the year
Exercisable at 31 December
2014
43.9%
343
1 year
0%
0.22%
2014
No.
678,196
52,000
(135,500)
(426,196)
168,500
21,500
2013
30.2%
392
1.5 years
1.5%
0.18%
2013
No.
–
1,137,026
–
(458,830)
678,196
Nil
All RSPs are exercisable at nil cost to the individual (with the exception of the 1p nominal value of each share awarded).
SDL Save As You Earn Scheme
On 24 April 2008 a Save As You Earn (SAYE) scheme was formally approved by the shareholders at the AGM. Following the success
of the UK and Netherlands SAYE schemes, in 2012 an extension to the international version was rolled out to SDL PLC’s subsidiary
companies in the United States and Canada. The rules are based on those of the UK in that employees must be eligible and there is a
monthly savings contract over a 3 year period. In 2014, 2013 and 2012, options were granted to UK, Netherlands, Canada and United
States scheme participants at 80% of the prevailing market price. The market price is taken the day prior to the date of invitations to
apply for an option. There are no performance conditions attached to the exercise of these options. These options may be exercised
within a fixed six-month period, three years from the date of grant or being made redundant.
The table below sets out the number and movements in, the SDL Save As You Earn Scheme during the year:
Outstanding at the beginning of the year
Granted during the year
Exercised during the year
Forfeited during the year
Outstanding at the end of the year
Exercisable at 31 December
2014
No.
391,447
432,141
(1,106)
(444,496)
377, 986
Nil
2013
No.
296,407
323,215
(8,563)
(219,612)
391,447
Nil
For the SAYE shares outstanding as at 31 December 2014, the weighted average remaining contractual life is 2.18 years (2013: 1.82
years).
Financial Statements
97
The fair value of equity settled share options granted under the SDL SAYE Scheme is estimated as at the date of grant using the Black
Scholes model. The following table lists the inputs and key output to the model in the year of grant:
Weighted average share price (pence)
Expected volatility
Expected option life
Expected dividends
Risk-free interest rate
2014
317
37%
2013
324
36%
1.6 years
1.4 years
0%
1.27%
1.5%
0.5%
For all Share Based payment models, the volatility is calculated from compounded daily logs of normal returns of the company share
price over a historic period commensurate with the expected life of the incentive.
13 Profit attributable to members of the parent company
The profit dealt with in the financial statements of the parent Company is £10.2 million (2013: loss of £24.9 million). No profit and
loss account is presented for the Company as permitted by Section 408 of the Companies Act 2006.
14 Post balance sheet events
There are no known events occurring after the statement of financial position date that require disclosure.
Financial Statements
98
Annual Report 2014
Five year group summary
IFRS
2014
£m
260.4
–2%
21.5
9.7
9.4
6.6
210.0
22.1
(8.7)
208.3
202.1
3.2
8.03p
IFRS
2013
£m
266.1
–1%
13.3
(24.0)
(24.4)
(27.9)
218.6
18.2
(17.9)
206.0
196.5
3.2
IFRS
2012
£m
269.3
18%
41.0
27.7
27.4
20.9
243.3
28.5
(10.3)
239.0
227.8
2.8
IFRS
2011
£m
229.0
13%
42.5
33.5
33.8
25.7
161.6
70.4
58.9
226.3
217.8
2.3
IFRS
2010
£m
203.5
18%
37.74
28.6
28.8
22.0
165.6
46.6
32.6
205.5
195.5
2.1
-34.78p
26.12p
32.72p
28.39p
15.10p
2.57p
35.41p
38.23p
34.70p
Year Ended 31 December:
Turnover (notes 1, 2, 3 and 4)
Growth in turnover
Operating profit before one-offs,
depreciation and amortisation
Operating profit / (loss)
Profit/(loss) before tax
Profit / (loss) after tax
Fixed assets
Cash and cash equivalents
Net current assets / (liabilities)
Total assets less current liabilities
Equity interests
Average number of employees (thousand)
Earnings per share – basic (adjusted for movements
in capital)
(notes 1, 2, 3 and 4)
Adjusted earnings per share – basic (before one-offs
and amortisation)
Notes:
(1) 2010 – Acquisition of Xopus BV and Language Weaver Inc
(2) 2011 – Acquisition of Calamares Holding BV Group
(3) 2012 – Acquisition of Alterian plc Group
(4) 2013 – Acquisition of Bemoko Consulting Limited
Financial Statements
99
Company Information
Directors
David Clayton
(Chairman)
Mark Lancaster
(Chief Executive Officer)
Dominic Lavelle
(Chief Financial Officer)
Chris Batterham
Mandy Gradden
Alan McWalter
Glenn Collinson
Secretary
Pamela Pickering
Auditor
KPMG Audit Plc
15 Canada Square
London
E14 5GL
Bankers
National Westminster Bank Plc
Abbey Gardens
4 Abbey Street
Reading
RG1 3BA
Solicitors
DLA Piper
3 Noble Street
London
EC2V 7EE
Registrars
Capita Registrars
Northern House
Woodsome Park
Fenay Bridge
Huddersfield
West Yorkshire
HD8 0LA
Stockbrokers
Investec Henderson Crosthwaite Corporate Finance
(a division of Investec Bank (UK) Limited)
2 Gresham Street
London
EC2V 7QP
N+1 Singer Capital Markets Ltd
One Hanover Street
London
W1S 1YZ
Registered office
Globe House
Clivemont Road
Maidenhead
Berkshire
SL6 7DY
Registered in England and Wales Number 2675207
www.sdl.com
Financial Statements
SDL (LSE: SDL) allows companies to optimize their customers’ experience across the entire
buyer journey. Through its web content management, analytics, social intelligence, campaign
management and translation services, SDL helps organizations leverage data-driven insights to
understand what their customers want, orchestrate relevant content and communications, and
deliver engaging and contextual experiences across languages, cultures, channels and devices.
SDL has over 1,500 enterprise customers, over 400 partners and a global infrastructure of 70
offices in 38 countries. We also work with 72 of the top 100 global brands.
SDL plc
Globe House
Clivemont Road
Maidenhead
Berkshire SL6 7DY
t +44 (0) 1628 410100
f +44 (0) 1628 410150
www.sdl.com
Registered in England and Wales Number 2675207
Copyright © 2015 SDL plc. All Rights Reserved. All company product or service names referenced herein are properties of their respective owners.